A common view among China investors: there’s little chance the two leaders will suddenly reach an agreement and resolve a trade dispute that has weighed on markets over the past year. Most are keeping an emphasis on domestic-focused defensive stocks, though much potential downside is already priced in, while foreign-exchange traders expect a slight weakening in the yuan.
The Shanghai Composite Index is up 21% in 2019 thanks to a strong start to the year, though it’s now down 8% from an April high.The general consensus is that Chinese equities won’t come under too much pressure, whatever happens at the talks. Daniel Gerard, Asia Pacific head of investment and risk advisory at State Street Bank and Trust Co.
Faced with the increasingly fiery trade dispute, China has taken steps to loosen liquidity, boost lending and support its weakening economy, which should help the bond market. Jason Pang of JPMorgan Asset Management said a negative outcome to talks could push central banks in the region to cut rates. He likes Chinese government and policy bank bonds of three- and five-year tenors.
Chen, who’s lowered equities exposure to just 30-40% since March, said certain buying opportunities will only emerge when the slowing economies of China and the U.S. cause a global debt crisis. “We are waiting for things to get worse on a much larger scale before buying the dip,” he said.
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