Chinese Equities Shed $4bn As Trade War Returns With Vengeance

According to data from the Institute of International Finance (IFF), outflows from Chinese equities amounted to $2.5bn last week, averaging $600m daily.

Outflows from non-resident portfolios have continued into this week too, rising to $1.5bn on Tuesday 14 May. In total, outflows have amounted to $4bn since the trade war tensions began again, the largest sine October 2018.

Last week, US President Donald Trump more than doubled tariffs on $200bn worth of Chinese imports to 25%, while threating to impose new tariffs on $300bn worth of goods later on. China retaliated with its own tariffs on $60bn worth of US goods, and markets experienced a sell-off as investors' fears were reignited.

According to IFF, Other Emerging Asia countries such as Korea, India, and Indonesia have mirrored China's trend, highlighting the risks to the whole region from the escalating tensions. For example, Taiwan alone suffered outflows of $400m on Wednesday. 

Meanwhile, bond flows have remained steady, with some countries in the region, such as Thailand, seeing relatively strong flows. Wednesday saw the largest one-day inflow into Thai bonds in three months at $240m.

Trade war concerns prevail as China welcomes start of a new year

However, over the last couple of days markets are appearing to take a breather after news emerged that Trump may delay the decision on car tariffs for up to six months.

Chris Beauchamp, chief market analyst at IG, said: "The tariff war 'cycle' is alive and well, it seems. Reports that the US would consider delaying fresh car tariffs helped markets to continue the move higher.

"After the first serious pullback in months, and one that actually lasted several days rather than several hours, it was always going to be interesting to see if there was any fresh money prepared to enter and drive markets higher.

"The sight of tech stocks leading the way will gladden the hearts of the bulls, and it was notable that the weak China data overnight failed to hurt equities too much. Evidently the assumption is that either China will ramp up stimulus to help counter the tougher economic conditions, or that it will force Beijing into renewing negotiations with the US.

"Either way, for now the focus is on whether this short-term rebound can act as a foundation for further gains."