With just over a month to go before the deadline on US-China trade talks, hedge funds remain split over the Chinese economy.
US officials recently indicated that a fresh round of tariffs and restrictions will be implemented across a wider range of sectors if no agreement is reached between the two countries by 1 March. Chinese officials are headed to Washington this week for more discussions.
Accusations of intellectual property theft from the US by China are among the many issues that have loomed large over the increasingly bitter trade war, which macro-focused hedge fund managers have pinpointed as a major theme for 2019.
Man Group appears increasingly bullish on the Asian heavyweight.
In a recent note, Man analysts pointed to the Chinese “bright spot, contrary to mainstream narrative” in the OECD’s leading 6-9 month economic indicators, in contrast to a more widespread weakening and slowing momentum elsewhere globally.
Man also identified potentially positive stock market momentum for several China-facing European sectors, such as auto parts, luxury goods and basic resources.
Meanwhile, Toscafund Asset Management recently suggested China has the “fiscal and monetary ammunition”, such as rate cuts, to reverse its recent deceleration.
On the flipside, Rubicon founder Paul Brewer believes China’s sharp economic slump has been exacerbated by its running of an “unsustainable” credit boom, adding that trade data offers a glimpse into how China’s economic woes have impacted the region.
“We can track all the things that trade off China. North Asian exports – if you look at Korea, export prices around the region, they are all suffering,” he told EuroHedge. “The position in China is more tenuous than people are prepared to accept.”
The outcome of the trade talks may also carry deep ramifications for emerging market assets.
Trium Capital portfolio manager Larry Lau said the deadline is “without a doubt the largest event on the EM horizon.”
“China continues to plough ahead with internal structural housekeeping and economic stimulus to contain the ongoing slowdown,” Lau told EuroHedge. “It has been bracing itself for the prolonged impact of reshaping global trade dynamics if, as I suspect, US trade talks make little more than superficial progress.”
China continues to divide opinion as trade reckoning looms on EuroHedge.