BEIJING: How to put a price on a full-blown trade war has emerged as the key challenge for China’s stock investors.
The Shanghai Composite Index’s drop of as much as 13% since an April peak has stalled this year’s bull market, leaving it without direction. Volumes are dwindling and indexes are barely moving. The market is seeing its longest stretch of calm since February as traders struggle to figure out their next move.
“We’re waiting for things to move, it’s hard to say exactly what, and in which direction,” said Wang Yiping, CEO at Shenzhen Qianhai Evolution Asset Management Co. “There are too many unknowns.”
As trade relations sour, stocks are snookered between the potential for good or bad news. Investors are concerned over a possible sell-off if the yuan tumbles beyond 7 per dollar, and are bracing for this month’s Group of 20 meeting between China’s President Xi Jinping and his US counterpart Donald Trump. Signs of a slowing economy continue to kindle stimulus hopes: data Friday showed manufacturing contracted faster than expected in May.
Investors have shied away, with China’s average daily turnover recently hitting a seven-week run of consecutive declines, the longest stretch on records dating back to 2010 according to data compiled by Bloomberg. Index moves have been hemmed in a narrow range after the first shock wave of a worsening trade scenario hit early last month. The CSI 300 Index hadn’t budged more than 2% in either direction for 10 days as of Friday, the quietest streak since February.
“Our approach has been, and will continue to be, watch and wait,” said Zhai Jingyong of Banyan Investment Management. “No amount of policies from here can help make up for the harm done from trade restrictions. It all depends on trade and a softening of the positions of the two nations. I still believe that’s happening.”
Buoyed by hope
While some think it’s too early to expect any stimulus from Beijing, others are buoyed by the hope that more policy easing, such as a further loosening of liquidity, may be on the way. Bets that good news may trickle out soon kept the index above a key level of support in May, fending off the impact of headlines on US tech curbs.
“Investors learn from experience, and the pain of missing out on the rally out of pessimism is still fresh in the mind for many,” said Zhu Zhenkun, investment manager at Cinda Securities Co.’s asset-management unit in reference to Shanghai Composite’s 33% surge between January and mid-April this year. “This time, some will be brave enough to buy.”
Other traders are pausing in anticipation of further bad news. “The impact of tariffs has not yet been fully reflected in prices,” said Liang Jinxin, analyst at Tianfeng Securities Co. “If you look at everything from daily coal use to consumption figures, the chances of more bad news on the way are quite high,” he said.
“For investors in for the short term, there are no reasons to be confident.”