At the time of writing, CSI 300 was down by more than 20% from its peak on 24 January 2018, while the S&P500 was only down 4% from its peak on 26 January. The trigger for the turn in the A-shares’ fortune was a combination of a slowdown in domestic growth momentum, when weak economic data started flowing in May, and a rise in Sino-US trade tensions, though we have been expecting the growth slowdown since April. The market just piled this onto the prevailing worries about deleveraging, defaults and liquidity squeeze.
While the probability for a full-blown trade war (with China retaliating on Trump’s tariffs on all Chinese exports to the US) remains low at this point, at around 10% in my view, the probability of a resolution is probably even lower. This means that there is more than 80% probability for long drawn-out negotiations to keep Chinese stocks apprehensive/volatile.
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