“The sentiment for outbound transactions, especially by Chinese companies going into the US, that deal activity has really dried up,” said Miranda So, a partner at law firm Davis Polk & Wardwell in Hong Kong. “In terms of whether people are just holding to ‘wait and see’ what happens in the short term versus holding for a longer period of time, more people are probably in the latter category, waiting for the macro environment to clear up a bit.”

So will be a featured speaker at a Hong Kong M&A forum hosted by Mergermarket and AVCJ on Thursday.

US President Donald Trump has placed tariffs on nearly half of all goods imported from China and threatened to add 25 per cent tariffs to an additional US$300 billion worth of Chinese goods as he tries to force Beijing to change years of industrial and trade policy. China has responded with its own tariffs.

The US also has blacklisted Chinese telecommunications giant Huawei Technologies and several of its affiliates over national security concerns as trade tension spread to the technology sector.

A number of analysts and economists have said recently that an extended trade war between China and the US, with tariffs on almost all of each other’s products, could push the global economy into a recession.

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Morgan Stanley has warned that a global recession could happen with nine months and JPMorgan said this week the chance of a recession in the US in the next year had increased to 45 per cent.

Bank of America said on Tuesday its June global fund manager survey of investor confidence was its “most bearish” since the global financial crisis, with pessimism driven by concerns over the trade war and a potential recession.

At the same time, regulators in the US, namely the Committee on Foreign Investment in the United States, or Cfius, have increased their scrutiny of investments and deals involving overseas companies and sensitive technology.

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“US-China cross-border activity has come down significantly. That’s not necessarily completely tariff driven,” said Alexander Weng, a managing director at Morgan Stanley. “In the last two to two-and-a-half years, factors like deleveraging in China, clamping down on the more speculative buyers and increased regulatory hurdles, including Cfius in particular, have all contributed to reduced volumes.”

US and European companies are still looking at inbound deals in China, particularly as Beijing has eased rules on foreign ownership in the financial industry and other sectors, So said. Companies are particularly interested in sectors focused around the potential of Chinese consumers.

“Private equity funds have quite a lot of dry powder and people are looking at China and Asia generally,” So said. “[Whether it’s consumer, retail or health care,] the notion is that China is generally a big growth market. For mature companies in the US or Europe, this is a potential growth engine.”

Mergermarket said there were 21 private equity buyouts worth US$3.9 billion in China and Hong Kong in the first quarter – 33 fewer transactions than the same period last year. Exits also declined, with seven deals worth US$6 billion in the first quarter.

The tense environment between the US and China has also caused some companies to shift their focus to other markets – Europe and Southeast Asia.

But, there is still appetite for deals.

Defence contractors Raytheon and United Technologies announced an all-stock deal on June 10 that would value the combined company after disposals at more than US$100 billion. The same day, Salesforce.com said it would pay US$15 billion for data analytics company Tableau Software.

Consumer, health care and telecommunications media and technology continue to be hot areas, advisers said.

Buyers and sellers are also more concerned about the certainty of a deal closing in this environment, with sellers increasingly picking certainty over a higher price, Terence Montgomery, head of mergers and acquisitions, Asia-Pacific at Willis Towers Watson, said.

“We are still seeing deals go through to successful signing and completion,” Montgomery said. “Yes, there is a bit of a slowdown, but deals are still happening regionally and outbound. Attractive assets continue to be hotly sought after. Competitive auction processes aside, pre-signing timetables are generally taking longer often due to an increased focus of the parties on dealing with certain matters before signing – people are doing more homework on the way in.”