Global market sentiment has been turning sour. All this doom and gloom is because hopes for a trade deal with China are fading. According to analysts at BCA Research, China’s economic outlook remains bleak despite the recent relatively stable tariff arrangements between the US and China. However, economic headwinds, including the expected decline in Chinese exports and the weak impact of Beijing’s stimulus measures, are taking their toll on investors’ sentiment.

"Despite a minor de-escalation in tariffs between the US and China, a lasting trade agreement remains out of reach. Meanwhile, the economic damage continues to mount," BCA Research notes. The experts estimate the probability of such an agreement at only 50%.

Besides, sluggish global trade is adding fuel to the fire, resulting in poor shipment volumes and worsening economic data. Moreover, the think tank warns about a further decline in Chinese exports.

The analysts at BCA Research point out that China’s stocks have not fully priced in the sliding trajectory yet. If this negative trend escalates, it will worsen profit forecasts. Against this backdrop, China's stock market may shrink more sharply than during the 2018–2019 trade war.

The experts recommend investors “stay defensive,” as maintaining an assertive stance will allow them to stay afloat. Furthermore, BCA Research advises favoring Chinese government bonds and A-shares. Meanwhile, forecasts suggest that China’s economy will log a significant slowdown over the next two quarters, "while Beijing lags behind the stimulus curve," the analysts add.

According to BCA Research experts, the factors weighing down China's economy include a potential rebound in the US dollar and a decline in global risk appetite.