Beijing: Signs of a softening stance from the United States on China tariffs may be a cue to buy the Asian nation’s stocks for some traders, but for long-term global funds the risk is still too high to pile into the market.
Money managers and strategists at Franklin Templeton, UBS Global Wealth Management and Jupiter Asset Management are among those expecting the trade war to be drawn out and inflict significant pain on the Chinese economy, making them cautious.
Their wariness suggests any temporary detente will likely prove insufficient to lure back global funds en masse.
Although tariff optimism boosted an index tracking the biggest Chinese stocks listed in Hong Kong by more than 2% last week, it is still among the worst performers in Asia since the April 2 US tariff onslaught.
The nation’s shares have missed out on inflows even as a rotation out of US assets benefited other markets such as Japan and Europe, according to asset manager Sanford C Bernstein.
“There are no signs of a sustainable inflow of funds into the China equity market,” said Hironori Akizawa, chief investment officer at Tokio Marine Asset Management International Pte Ltd.
There will be a “tug of war” in the stock market as buying by those anticipating a trade deal will be countered by selling as investors examine the impact on the economy, he said.
After a tit-for-tat tariff war pushed China and the United States to rack up duties to more than 100%, signs are emerging that both sides find them unsustainable.
A Bloomberg report last Friday suggested Beijing is considering suspending its 125% tariff on some US imports. China, however, played down progress in its trade dispute with the United States later that day.
Such a lack of clarity makes investors worry the twists-and-turns during negotiation will hamstring economic activity, even with Beijing’s stimulus.
China’s Politburo vowed last Friday to “fully prepare” emergency plans to counter increasing external shocks, and pledged to set up new monetary tools and policy financing instruments.
Goldman Sachs Group Inc analysts wrote last week that China’s economic growth will slow sharply to a 0.8% quarter-on-quarter annualised rate in the second quarter, compared with 4.9% in the first three months of the year.
The bank also slashed its target for the MSCI China Index twice this month.
“In the near term, we still think volatility is likely to stay elevated and the core of the tensions, at least between the United States and China, go beyond just trade,” said Xingchen Yu, an emerging-markets strategist at UBS Global Wealth in New York. “Stronger policy support can partially offset some of the tariff headwinds, but we need to see that happening.”
The caution shows a marked change from the wave of optimism that pushed Chinese stocks into a bull market this year.
The dominant market view during the early days of Trump’s presidency was that China – with its room for fiscal and monetary stimulus – can withstand that storm.
That belief is slowly waning as some investors worry the economic toll from tariffs will be too big to offset.
Yiping Liao, a portfolio manager at Franklin Templeton Emerging Markets Equity, noted how it took “18 months to conclude the US-China trade deal during Trump’s first term”.
China will probably be among the last to strike a comprehensive deal with the United States, Liao said, which makes her cautious on the broader Chinese equities market.
To be sure, some see the recent underperformance as a buying opportunity.
David Chao, a global market strategist at Invesco Asset Management, said now is the chance for those who “missed the Chinese equity rally boat” earlier this year, referring to the DeepSeek-sparked surge that began late January.
Amundi’s Asia senior investment strategist Aidan Yao said its European clients are starting to look at China again.
“It’s not just about tariffs, but more the real decoupling between these two economies which present risks for investors and for the Chinese economy,” said Sam Konrad, co-manager of the Jupiter Asian Income strategy. — Bloomberg
