Trade Saga Unknowns Seen Bringing More Pain for China Investors

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A bad year for Chinese stocks looks set to worsen as the trade dispute between Beijing and Washington squeezes a market that’s just fallen below a key support level for the first time in two years.

Analysts said uncertainty over how the U.S.-China disagreement pans out will continue to weigh on investor sentiment, with one saying further escalation could be like a Cold War. Shanghai’s benchmark index extended a two-year low Wednesday, despite government attempts to reassure the market.

Here are some views of analysts and fund managers:

Sun Jianbo, president of China Vision Capital Management in Beijing:

The market is yet to bottom out as possible twists and turns in U.S.-China trade talks will continue to weigh on sentimentSome big caps are still at relatively high levels and may face selling pressureStock declines would prompt investors to cut leverage, leading to further losses -- a vicious cycle

Dai Ming, fund manager at Hengsheng Asset Management:

Don’t see a bottom yet. There were a lot of margin calls on Tuesday and more are looming that will accelerate the drop. Management in more than 90% of companies on ChiNext and 50% on main board have pledged shares Escalation in trade tension as well as disappointing May economic data surprised investors and has added to pessimismHard to gauge the impact of a full-blown trade war on China’s economy, but if the tariff list expands from finance and technology it’s very scary. This is like a Cold War Yi Gang’s comments signaled the government doesn’t see systemic risk in the stock market. Investors may interpret this as meaning the national team is in no rush to step in until there’s a crash like in 2015  

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Wu Kan, fund manager with Shanshan Finance in Shanghai:

The double whammy of domestic and external risks is hitting market confidence. Risk appetite has dropped sharply, as investors worry about more unexpected developments in U.S.-China trade talksInvestors are also increasingly concerned about possible “landmines” on the mainland market as some shareholders may face forced liquidation of stocks they pledged or margin calls as markets declineThe downtrend is unlikely to reverse soon, unless China tunes its financial deleveraging policies or the trade situation stabilizes

Read: China at Risk of Losing Title of World’s Number Two Stock Market

Howard Wang, head of Greater China equities, JPMorgan Asset Management:

While the correction was sharp -– and as with all corrections, unpleasant -– we are continuing with portfolio strategies focused on secular growth in China Best to take longer-term view on fundamentals and valuation levels rather than what happened today or what will happen over the next few weeksGiven the merits of the global trading system and the problems associated with a re-mapping of supply chains, we expect a negotiated solution rather than a continuation of tariffs between the U.S. and its major trading partners

Banny Lam, head of research at CEB International Investment:

With Wednesday’s stronger-than-expected yuan fixing, China is trying to tell the market the yuan won’t weaken further and it’s not going to devalue the currency to fight the trade warTrade concerns will hurt market sentiment in the third quarter. A potential trade war would pressure the economy in the fourth quarterThe yuan will keep being pressured along the way, and the central bank will step in from time to time to rein in depreciation expectations

More: China Moves to Slow Currency Drop After Fastest Loss Since 2015

Ken Cheung, a senior currency strategist at Mizuho Bank in Hong Kong:

The PBOC is probably attempting to use the stronger-than-expected fixing to avoid a simultaneous selloff in the yuan and China equitiesStabilizing sentiment is the central bank’s primary task at the momentTrade tension and weakening growth momentum will keep the yuan under pressure in the near term, in a trading range between 6.45 and 6.50 per dollar

— With assistance by Amanda Wang, Tian Chen, Jeanny Yu, Abhishek Vishnoi, Emma Dai, and Sofia Horta e Costa