After a white-knuckle ride in the first half year, investors have remained apprehensive about the outlook for the second half year, clouded by an intensifying global trade war and rising interest rates.
Nobody is cashing out in a hurry, believing there is still some life left in the long-running stock market rally. But the prognosis put forward by analysts from some of the largest and most influential investment houses are sounding a lot less upbeat than before.
Whichever way you look at it, the trade war between the United States and the Chinese mainland is joined. Since neither side is showing any sign of backing off, the conflict is widely expected to escalate in coming months.
In the latest salvo, the US is drawing up a list of US$200 billion in Chinese imports for tariffs. This follows the 25 percent tariffs on Chinese goods worth US$34 billion that came into effect last week.
The Hong Kong government tried to calm nerve by saying that the fallout from conflict will have little impact on the local economy because only a tiny portion of the trade under sanction passes through Hong Kong.
What have many investors worried is the side effect that the trade war will have on the value of the Chinese yuan and the possible outflow of overseas capital to the US to take advantage of the stock market rally, rising bond yield and the appreciating US dollar.
The weakening Chinese yuan in the past few months is seen to have depressed the mainland stock market, prompting many investors to seek refuge in so-called “defensive” stocks, including retail, healthcare and telecommunications.
Analysts expect that the trade war is casting a shadow on the prospect of the mainland economy and raised concern about possible outflow of capital. They expect to see direct central bank intervention in the forex market when the exchange rate of the yuan falls below 6.6 yuan per US dollar.
A change in investors’ mood could spread to the property market, prompting developers to speed up their schedules in clearing their stocks of newly completed apartments. This, together with the proposed tax on vacant flats, could lead to a softening in prices.
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