Singapore, Feb 5 (Reuters) - China and the U.S. are entangled in a dispute with uncertain outcomes, potentially leading to a trade war between the two largest economies. Amidst this, the Chinese stock market is being considered the default choice for investors.
The Chinese stock market, already facing concerns over economic direction and skepticism towards Beijing's growth stimuli efforts, resumed trading after a week-long break with heightened tension due to the trade conflict.
Despite the recent 10% U.S. tariffs and China's reciprocal actions being viewed as moderate, market reactions hinted at investors adopting a more cautious stance compared to the initial phase of President Trump's term in office.
The uncertainty surrounding discussions between Trump and Chinese President Xi Jinping and sudden changes in U.S. policies towards Chinese imports have raised concerns among investors seeking to avoid risks.
Expressing a prudent approach, Francis Tan, chief strategist for Asia at CA-Indosuez, advises clients to shift towards bonds for hedging against equity downturns, citing increased uncertainty in the current trade dynamics.
International concerns about China's growth trajectory, compounded by property market challenges and unfulfilled stimulus pledges from Beijing, have prompted significant capital outflows from China-focused funds over the past few months.
Market analysts suggest that the market's subdued responses reflect preparations for potential trade disruptions, signaling a more intricate resolution process compared to previous trade negotiations led by Trump.
Despite expectations of a weaker yuan to counter U.S. tariffs, Chinese authorities displayed intentions to maintain stability by only slightly adjusting the currency's trading band, showcasing a deliberate approach for the time being.
While some investors view Chinese markets as relatively inexpensive for selective stock picking, many are hesitant to engage due to tariff implications or prefer a wait-and-see approach in response to evolving trade dynamics.
Various investment managers, including Rob Brewis from Aubrey Capital Management and Vivian Lin Thurston from William Blair's, have articulated strategies to mitigate tariff impacts by focusing on domestic-oriented sectors to navigate current market uncertainties.