China Stock Market: Foreign Investors Exercise Caution Amid Trade Tensions
As the trade dispute between the U.S. and China escalates, foreign investors are steering clear of the Chinese stock market.
Despite the muted reaction to the recently imposed U.S. tariffs and China's retaliatory measures, analysts suggest that investors are adopting a more measured approach compared to Trump's first term. Concerns over the potential impact of a trade war, coupled with ongoing worries about China's economic prospects, have dampened investor sentiment.
According to LSEG Lipper data, foreign investors have withdrawn nearly $12 billion from China-focused funds in the past three months. This reversal of inflows indicates profit-taking and a lack of long-term commitment.
"I don't really believe that China's waiting for Trump and they're going to have all this kind of stimulus to roll out," said Sat Duhra, portfolio manager for Asian dividend income at Janus Henderson. "We don't really want to add anything to China because we seem to have got it okay at this point... adding anything else should probably present a lot more risk."
Market participants note that the currency exchange rate, which is often seen as a bellwether for trade conflicts, has remained relatively stable. However, some analysts anticipate potential weakness in the yuan if Beijing seeks to mitigate the impact of U.S. tariffs.
Blue-chip stocks in mainland China have declined over the year to date, while global stocks have risen. Similarly, the recent rebound in Hong Kong's Hang Seng index lacked momentum and volume.
"It's just short-term trading... people need to be short-term oriented," said Steven Leung of UOB Kay Hian.
Despite the cautious outlook, some investors believe that Chinese markets remain undervalued. However, they emphasize the need for selectivity and avoidance of companies directly affected by tariffs.
"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 of Aubrey Capital Management.
Overall, foreign investors are adopting a prudent approach to the Chinese stock market as the trade dispute unfolds. They are seeking balance by identifying opportunities while mitigating potential risks.