Chinese equity markets are seen staying choppy as some investors are on the prowl for bargains while others take profits off the table in an uncertain atmosphere where margin loans and an uncertain economy act as a major overhang over stocks. The Shanghai Composite fell 53.09 points or 1.29 per cent to finish Friday at 4,070.83, and ended the week 2.87 per cent higher. Hong Kong’s Hang Seng Index though gave up 1.06 per cent to settle at 25,128.51 on Friday, losing 1.1 per cent on a weekly basis. “We saw a lot of rapid account openings and rapid take up of margin loans. Those two things simply put them in a position where an exponential rise can’t continue. In this case, I think the authorities mistakenly encouraged things upwards,” said Kevin Gardiner, Global Investment Strategist at Rothschild Wealth Management. “The lack of liquidity is on the downside and I think they do have to address that at some stage…I expect Beijing to move away the funds gradually in the second half,” said Gardiner. Outflows from Chinese equities continued for the second week ending on July 23, as global mutual fund and exchange traded funds pulled a total of US$2.9 billion from the sector, according to a Jefferies weekly global asset fund flow tracker. Under the stock connect, foreign investors pulled a net 1.4 billion yuan from the A-share market last week and mainland investors bought a net HK$1.2 billion of Hong Kong shares during the period. Ping An Insurance, Jilin Yatai and Kweichow Moutai are among the most shorted mainland shares by foreign investors via the trade link. Foreign investors are also closely monitoring the timing of a rate hike in the US. A majority of global investors are trading on the idea of a rate hike in December and if the lift-off comes in September, it could spark a huge repricing in the market. “We believe US interest rates will rise this year… and it has not been completely priced in. It will keep international funds on the back foot from the emerging markets. We believe Asian equity markets to continue to underperform the developed markets in the second half,” said Gardiner. In the medium and long term, Rothschild’s Gardiner is bullish on returns from the A share market thanks to the view of earnings improvements. “As China slows down, slower growth may turn out to be more profitable for investors because I think slowly the government will step back from intervening so much in the economy and allow companies to move capital and prices in a way that benefit shareholders and I think earnings performance will actually improve in a slower economy,” said Gardiner.