Trade war-triggered turbulence in Chinese stocks presents opportunity for dip buyers
- HSBC Jintrust and Hengsheng Asset say the sell-off on Chinese stocks creates a buying opportunity
- The Shanghai Composite Index is down 13 per cent from an April high
Chinese traders are lamenting that the world-beating rally by the nation’s stocks this year may fizzle out because of the re-escalation of the trade war with the US. But there’s one possible benefit: good opportunities for dip buyers.
HSBC Jintrust Fund Management and Hengsheng Asset Management say the recent flare-up of the China-US trade dispute has mostly been priced into stock prices and it is still possible that the world’s two largest economies will eventually strike a deal to resolve the current conflict, though the process could be bumpy.
Analysts said they like Chinese sectors involved in finance, technology and new energy, as well as food and beverage, retail and agriculture. For example, liquor distillers like Kweichow Moutai and Wuliangye Yibin have held onto most of their gains this year, with stocks trading close to their record highs, while pig and chicken breeders like Muyuan Foods and Shandong Minhe Animal Husbandry may still rise on expectations about strained supply, analysts say.
Bullish sentiment on Chinese stocks quickly faded this month as US President Donald Trump unexpectedly announced he would more than double the levies on US$200 billion worth of Chinese imports and threatened to include more items that are not covered by tariffs. The benchmark Shanghai Composite Index is now down 13 per cent from an April high, with US$1.2 trillion in market cap wiped off since then. It was a swift reversal of the bull momentum that had driven up the index by as much as 31 per cent this year.
“There’s no more room for further decline to run and there’s no systemic risk, unless the assumption is that there will be an all-out confrontation between China and the US beyond the trade front,” said Dai Ming, a Shanghai-based fund manager at Hengsheng Asset. “I am also cautiously optimistic that an agreement on trade will eventually be reached between the two nations. Therefore, this creates a buying opportunity both in the short and medium term.”