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SHANGHAI (Reuters) – Just six months ago the Sino-US trade war widened, and the spillover has already pushed Chinese stock markets into debilitating emerging markets such as Turkey, China, and China. Argentina and Venezuela.
With about a 20% loss to date in 2018, the Shanghai Stock Exchange <.ssec> has joined the crisis-affected trio among the world's four worst. Conversely, the Nasdaq US technology index <.ixic> is one of the biggest winners in the world, up about 15.5%.
While some analysts say the rest of the world remains confused as to how a trade war could disrupt the two largest economies – with their long and long production supply chain – the charge could not be addressed to investors in the Chinese markets.
In addition to falling stock prices, the Chinese currency fell sharply and trading volumes declined. Fund managers prefer cash rather than investments and investors rushed on the safety of low-yielding government bonds.
"I have seen hedge funds dispose of $ 10 billion in cash or the equivalent and expect to return to the market," said Chi Lo, Greater China economist at BNP Paribas Investment Partners. some months.
And the war is just beginning. The administration of China and US President Donald Trump has so far only given tariffs of $ 50 billion on their imports. Trump said he was ready to tax all of the roughly $ 500 billion worth of Chinese goods that the United States imports every year.
Lo, of BNP Paribas Investment Partners, fears that China's economic growth will slide to 6.2% next year, the lowest since 1990, as the impact of tariffs will be felt.
UBS Securities believes that a generalized trade war would erase the earnings growth of the leading companies listed in China, and that the benchmark <.csi300> could fall to 3,000 points in its worst case scenario, about 7% below current levels.
On the way to NASDAQ
While most economists polled by Reuters last month were expecting the trade war to affect the US economy, investors believe that some US sectors, such as technology, are less exposed than many. Chinese companies. US stocks.
Guotai Nasdaq 100 QDII-ETF, an exchange traded fund (ETF) listed on the Shanghai Stock Exchange, has seen its assets under management climb by 160% in the last two months, while the Bosera S & P 500 ETF has seen its assets.
"I plan to invest more in the Nasdaq, home to the world's most innovative titles, such as Google and Microsoft," said investor Ding Ou, who has made more than 20% investments in the Nasdaq ETF. heavy losses by buying national shares. "If the trade war intensifies further, Chinese equities and the yuan could continue to fall."
In July, nearly 1 trillion yuan was invested in Chinese money market funds, the fastest pace this year, boosting assets by 12 percent.
The main exchange-traded Chinese money market funds, which are trading as stocks and are therefore more popular with equity investors, also recorded strong inflows.
The four largest money market ETFs have seen asset growth of around 50% since the end of June.
Meanwhile, investors continue to avoid Chinese equities, even after the crisis led valuations to levels considered cheap. Their dislike is partly linked to the national campaign led by China in the last two years to reduce its economy.
According to the Reuters benchmark, the Shanghai benchmark is trading at a price / earnings ratio of 11.2 and the trading volume has reached a level close to its lowest level in four years . The S & P 500 index is twice as expensive with a ratio of 22.
Some fear that this gap will widen further if the trade differential hampers the earnings prospects of Chinese companies.
"The valuation data you see is static, but the health of the companies is dynamic," said Wu Kan, head of equity trading at Shanshan Finance, based in Shanghai. "A major concern is that corporate earnings forecasts could be degraded."
UBS made such an adjustment last month, halving CSI300 corporate earnings growth over the next 12 months to 5%.
In particular, analysts have reduced earnings estimates of major exporters in sectors targeted by US tariffs. Earnings estimates for 2018 have been trimmed by 8% in the information technology sector since March, while the telecom sector has recorded a 3% drop in its forecast earnings, according to Reuters data.
"The biggest uncertainty this year is geopolitical risk, and it's almost impossible to integrate it into your forecasting models," said Xie Donghai, chairman of the Shanghai-based Entropy Capital hedge fund company.
Anxiety in the meeting room
According to data from the Shenzhen Qianhai Simuwang Fund Distribution Co., investment portfolios of hedge funds fell on average to their lowest level in three years, at 52.6%, against 70.3% in January.
A Reuters survey showed a similar trend in the mutual fund industry, as equity fund managers reduced their equity exposure to 66.9% in August, up from 76.9% a year earlier. .
And anxiety is not limited to trading rooms. The mid-year earnings season revealed the heavy risk of uncertainty in the meeting rooms of companies in China.
Aluminum manufacturers Jilin Liyuan Precision Manufacturing Co. Ltd. and Yinbang Clad Material Co Ltd stated that their sales abroad had been reduced to zero. Tongrun Equipment Technology Co, a Chinese manufacturer of transmission and energy control equipment, expects its nine-month profit to be between "-20% and 30%", a wide and uncertain range spawned by concerns about tariffs.
Some companies refuse to give any indication of profits.
"If we paint a dark picture, investors would panic," said Liu Jieling, head of investor relations at Zhongji Innolight. "If we express optimism, the reality could be different."
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