Despite recent efforts to de-escalate tariffs between the U.S. and China, BCA Research analysts have cautioned that China’s economic outlook remains bleak due to persistent headwinds. A projected contraction in Chinese exports, along with delayed stimulus measures from Beijing, are expected to weigh heavily on growth prospects.
Continued Struggles in the U.S.-China Trade War
In their latest analysis, BCA analysts highlighted that, while there has been some marginal progress in tariff de-escalation, a sustainable trade agreement between the U.S. and China is still far from being achieved. The analysts assigned only a 50% probability to a deal being finalized during President Trump’s term, underlining the ongoing economic damage as both sides struggle to reach a compromise.
Weakening Global Trade and Export Contraction
BCA noted that soft economic data, including shipment indicators, already signal a slowdown in global trade. Chinese exports are expected to continue their decline, exacerbated by collapsing U.S. capital expenditure intentions. As a result, the outlook for China’s manufacturing sector remains weak, and the broader economy is feeling the pressure.
Deteriorating Growth Trajectory for Chinese Equities
According to BCA, Chinese equities have yet to fully adjust to the deteriorating economic trajectory. Earnings estimates are expected to drop more sharply than during the 2018-2019 trade war, signaling further weakness in the stock market. The analysts emphasized that in trade negotiations, the key factor is not the amount of pain each side can inflict, but how much pain each side is willing and able to endure.
Investment Recommendations: Stay Defensive
In light of the continued economic uncertainty, BCA has advised investors to adopt a defensive stance. They recommend favoring Chinese government bonds and A-shares over riskier offshore stocks. The analysts also warned that China’s economy is likely to experience notable weakness over the next two quarters, as Beijing lags behind the stimulus curve.
BCA’s advice is clear: underweighting the MSCI China Index is prudent due to potential downside risks, especially with the possibility of a U.S. dollar rebound and a broader global risk-off sentiment.
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