Chinese stocks are taking a hit on Friday as trade tension tightens the screws on China's biggest market movers.
Even stocks that are set to benefit from the "Singles Day" bonanza on Sunday are taking a beating on Friday as prospects of an "economic iron curtain" linger in investors' minds.
Real Money "Stock of the Day" Alibaba (BABA) has fallen by almost 4% and JD.com (JD) has sagged as much as 2% in morning trading. Their stocks have mirrored the drop of the Shanghai Index, which has been dragged down by the worrisome trade data released Tuesday night.
"Strong export data in October shows that Chinese exporters are worried that U.S. tariffs will increase in January 2019," a report from ING Group greater China economist Iris Pang explains. "We expect this front-loading behavior to continue for the rest of 2018, as we don't think the Xi-Trump meeting at the G20 will yield positive results."
She noted that the front-loading bodes poorly for and leaves her group with a pessimistic view on Chinese trade for 2019. The bearish outlook comes amid the slowest growth for the Chinese economy since 2009.
Deceleration in the economy and worsening trade relations pose significant harm to companies like JD and Alibaba given their reliance on heightened discretionary spending on retail, increasingly global supply chains, and budding relationships outside of mainland China.
Further slowdowns would be problematic given the already weakening domestic consumption that Alibaba relies upon.
To be sure, some trade problems might be alleviated as China weakens the yuan and makes overtures to new trading partners to fill the United States shaped hole in its trade equation.
"No country, in my view, will 'divorce' a major nation that remains, even amid a slowdown, among the world's fastest growing major economies," former Treasury Secretary Hank Paulson said at the Bloomberg New Economy Forum on Wednesday.
Paulson speculated that China will simply move on to other trading partners in the far East and continue to strengthen without President Donald Trump.
He added that he hopes there is a revival of the Trans-Pacific Partnership at some point in order to rekindle warmer Sino-American trade and the United States being frozen out.
Such an arrangement would certainly reverse the fortune of major Chinese companies in technology and ecommerce and possibly unlock more value for shareholders of the companies given a much rosier relationship.
For now, the market and most experts are pricing the probability of Paulson's preferred scenario at about zero percent while Trump remains in office.
This minimized probability is especially likely as White House National Trade Council Policy Director Peter Navarro turns up the temperature on trade.
"Consider the shuttle diplomacy that is now going on by a self-appointed group of Wall street bankers and hedge fund managers," he railed at the Center for Strategic and International Studies on Friday morning. "As part of a Chinese government influenced operation, these globalist billionaires are putting a full-court press on the White House in advance of the G-20."
Navarro said that Trump will not fold to the demands of "unregistered foreign agents" on Wall Street and would make a deal on his own terms.
"If Wall Street is involved and continues to insinuate itself into negotiations, there will be a stench around any deal that is consummated because it will have the imprimatur of Goldman Sachs and Wall Street," he said. "If [Wall Street firms] want to do good, then spend their billions in Dayton, Ohio."
Optimism heading into the Buenos Aires G20 meeting at the end of the month is justifiably muted and Chinese stocks could continue sinking as a result.