The decline in inventories in China could worsen, analysts expect no end in sight

Chinese stocks have sunk into a market down on Tuesday, and analysts expect losses to intensify in the face of worries over the Chinese economy, weak yuan and trade wrangling with the United States continue to shake investors.

The Shanghai Composite Index closed at 2,844.51 points, 20% lower than January's high, indicating a bear market. A Hang Seng measure of Chinese companies in Hong Kong is down 19% from five months ago. The yuan has weakened by 0.3% to its lowest since December 28th.

Read on for analysts on the decline and where they see the market here.

Hao Hong, Chief Strategist at Bocom International Holdings Co:

• There is still a lot of selling pressure. Investors rush out to avoid risk
• "Many people have listened to broker advice to build positions around 3,000, betting on a rebound, they are now under great pressure to sell"
• The main reason for the fall of Chinese stocks slows economic growth rather than promised actions or the trade war
• "The bottom line is that the fundamentals in China are very bad, the market has begun to correct itself even before the trade war broke out."
• Hard to say that the actions have bottomed out. And it is difficult for the government to solve the problem because it can not flood the markets with fresh money

Tai Hui, APAC Market Strategist from JPMorgan Asset Management Inc .:

• Market volatility in China is due to a combination of factors: US-China trade stress, concerns about corporate bond defaults, and uncertainty about growth prospects
• Corporate bond failures are probably the biggest concerns at this point. Stock sentiment should remain cautious for the rest of the year
• Many onshore investors are aware that the authorities have deleveraging and financial risk reduction as a long-term goal, despite their desire to provide short-term liquidity.
• The impact of the trade conflict is probably exaggerated. Many Chinese companies focus on the domestic market and do not have direct commercial links with the United States.
• Consumer sentiment in China remains positive. See structural demand for consumer services, such as health care and education services

Sun Jianbo, president of China Vision Capital in Beijing:

• This is a typical bear market where the index continues to fall below favorable levels
• Not yet the bottom. Pessimism will continue to grow as many companies are at the limit of margin calls and defaults. These will lead to other sales
• Shanghai Composite could fall at least another 10 percent
• Some long-term funds, including the so-called national team, might be interested in buying in the bear market area

Qian Qimin, strategist of Shenwan Hongyuan Group Co. based in Shanghai:

• Diving in the United States harms the night. NOTE: S & P 500 fell 1.4% on Monday, the biggest loss since April 6th
• Liquidity is generally very tight in the banking system at the end of June
• The depreciation of the yuan is hurting companies that have high levels of debt and exporters in dollars, resulting in large caps such as airlines
• Do not see the bottom yet. The market may continue to decline as it is still difficult to assess the impact of trade tensions and investors will continue to reduce risks

Catherine Yeung, Director of Investments at Fidelity International:

• Markets initially rose on Monday following the RRR drop, but the trade surplus is taking center stage and will likely experience much more volatility
• China could do more to support the market, potentially increasing fixed investment, even if it still has to go through the deleveraging process
• The People's Bank of China is in a better position than the other central banks because it still has the necessary tools. Consumers still spend
• Not beyond the scope of China's long-term opportunity to make bilateral agreements with everyone outside the United States, which is certainly not good for US consumers
• China could still be an outperforming market this year because we've seen it decline, and maybe the developed markets will see exits because of the current tensions
• The Chinese government has a flexible approach in terms of policy tools. Data show an economic slowdown, but coming from a very high base

Lu Jie, head of research in China at Robeco Investment Management:

• In the midst of massive stock sales, foreign investors would favor defensive stocks such as consumer goods benefiting from improved consumption while avoiding the shocks of the trade war
• Upward trend in foreign inflows into China Apart from just getting started
• "I had roadshows in Singapore on June 19 when A shares tumbled, none of the investors met asked me about the market's downfall"
  • Foreign investors asked two questions: whether China will experience an economic crisis and whether Chinese companies will improve corporate governance

– With the help of Cindy Wang and Amy Li

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