Investing.com -- Citi analyst Dirk Willer advises caution regarding Chinese equities, stating it is "too early" to position for their outperformance despite potential local stimulus and market resilience.
In a note to clients, Citi highlighted the ongoing risks tied to the Trump administration’s proposed tariffs on Chinese imports and how these measures could dampen the performance of China’s stock market in the near term.
"Chinese equity underperformance is at risk from more local stimulus, but not immediately," Citi stated, noting that President-elect Trump’s plans include potential tariffs as high as 60% on all imports from China.
While such a level is unlikely to be implemented initially, "tariffs would be ratcheted up over time, eventually ending at very high levels."
The report draws parallels to the 2018 trade war, during which Chinese equities were significant underperformers, as were the Chinese yuan (CNH).
Reflecting these concerns, Chinese equity ETFs have seen outflows post-election, while the more internationally traded HSCEI index is already showing notable declines.
However, Citi acknowledges some surprising resilience in Chinese A-shares, which have "remained in their trading range" and even slightly outperformed European equities. The resilience is partly attributed to expectations for further stimulus.
"Some analysts expect more stimulus to be announced at the Central Economic Work Conference in December," Citi noted, adding that additional measures could be introduced later if the local economy struggles under U.S. trade policies.
Citi concluded that while a "meaningful sell-off" in Chinese equities could present a buying opportunity, the uncertainty surrounding Trump’s policies suggests it is too soon to anticipate outperformance.