Chinese stocks are flirting with bear market territory as trade worries fester

Trade war concerns have weighed on U.S. equity markets, but Chinese stocks are bearing the brunt of the international tension.

China's large-cap ETF, the FXI, just posted its 11th straight session of losses for the first time since 2012 as U.S.-China tariff talk remains a central market concern. The picture looks even grimmer when you consider the FXI is now within shouting distance of bear market territory since its Jan. 26 high, down just over 19 percent in that time.

War of words?

Of course, a strengthening U.S. dollar has also contributed to those losses, but another reason is the rhetoric coming out of China's government after it said it is prepared to respond with tariffs of its own.

With such words, combined with the fall in China's market, it appears Beijing is willing to take some short-term economic pain to defend itself in a trade skirmish. In other words, even though the odds are still low that a full-blown trade war will break out, they're a lot higher than they were not that long ago.

Spillover watch

At some point, the rising tensions could have an impact on our own economy and thus our stock market. As Federal Reserve Chairman Jerome Powell said recently, for the first time he's hearing decisions about investment and hiring postponements due to the concerns over a possible trade war. Therefore, if see China's stock market falls firmly into bear-market territory, that could be a signal the U.S. stock market will eventually feel some pain as well.

If a trade war is going to hurt China, it's going to hurt the U.S. as well, so I'll be watching this market closely over the coming days and weeks.

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