The Chinese stock market, already reeling from investor worries over where the economy is headed and disappointment at Beijing’s effort to stimulate growth, returned from a week-long break with a muted reaction to the trade dispute.
Conflicting reports on Wednesday over whether and when Trump and Chinese President Xi Jinping would talk and a sudden halt on the U.S. accepting postal packages from China - which blindsided e-commerce stocks - highlighted the pitfalls investors want to avoid.
“The level of uncertainty has increased because, while they are showing their hands, no one knows if the actual trade war game has begun or when it will come.”
In the past three months, foreign investors have pulled nearly $12 billion from China-focused funds, according to LSEG Lipper data, all but reversing October’s inflow of $13 billion.
“I think that a lot of people say that China’s waiting for Trump and they’re going to have all this kind of stimulus to roll out. I don’t really believe that,“ said Sat Duhra, portfolio manager for Asian dividend income at Janus Henderson.
TRADING TRADE WAR
Even the yuan currency, which many expect to weaken if Beijing wants to offset U.S. tariffs, fell back only a little on Wednesday as authorities pushed its trading band a little stronger in a signal they intend to keep it stable, for now.
A bounce in Hong Kong’s Hang Seng index this week, with speculative gains for tariff-targets such as Chinese electric vehicle stocks also lacked momentum or much volume.
To be sure, some investors say Chinese markets are still relatively cheap - with a forward price-to-earnings ratio around 11 for the Shanghai Composite compared with 22 for the S&P 500 - and that opportunities abound for stock picking.
“We have very little exposure to any companies caught up in the tariff spat and as such will not be adjusting our portfolio,“ said Rob Brewis at UK-based Aubrey Capital Management.
Janus’s Duhra, who is underweight China, has also avoided export-focused Chinese companies and instead bought domestic travel firms and state-owned enterprises.
“The long structural overweight to China is over,“ said K2 managing director and head of research George Boubouras.
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