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Investing.com-- BCA Research analysts cautioned that China’s economic outlook remains bleak despite recent tariff de-escalation efforts between the U.S. and China, due to persistent headwinds, including a projected contraction in Chinese exports and delayed stimulus measures from Beijing.
"Despite marginal de-escalation in tariffs between the US and China, a sustainable trade agreement remains elusive, and economic damage continues to mount," BCA analysts wrote.
BCA analysts assigned only a 50% probability to a deal being reached during President Trump’s term.
Soft economic data and shipment indicators already signal weakening global trade, with Chinese exports expected to decline further due to collapsing U.S. capital expenditure intentions, analysts said.
BCA noted that Chinese equities have yet to fully price in the deteriorating growth trajectory, with earnings estimates likely to fall more sharply than during the 2018-2019 trade war.
"Importantly, in negotiations, the critical factor is not the amount of pain each side can inflict, but rather how much pain each side is willing and able to endure," analysts wrote.
BCA advised investors to stay defensive, favoring Chinese government bonds and A-shares over riskier offshore stocks.
"China’s economy will experience notable weakness over the next two quarters while Beijing remains behind the stimulus curve," analysts added.
For now, BCA recommended underweighting the MSCI China Index, citing downside risks from a potential U.S. dollar rebound and global risk-off sentiment.