Equity strategists said the long-term fundamentals of the global stock market are still solid and that they believe there are currently only some renewed trade frictions playing out between the world’s two largest economies, rather than a sharp re-escalation of the China-United States trade war.

Following the heavy US market selloff on Friday, the Hang Seng Index (HSI) — Hong Kong’s equity market benchmark — opened 656 points lower and fell to 954 points lower to hit 25,336 points in the morning trading session. The index recovered some losses in afternoon to close at 25,889 points, tumbling 1.5 percent on a market turnover of HK$490.4 billion ($63 billion) on Monday-the largest since April. Pharmaceutical and mobile phone stocks retreated, while chip and gold stocks surged.

The Hang Seng China Enterprises Index — a barometer of Chinese mainland companies — dived 1.5 percent to finish at 9,222 points, while the city’s technology stock gauge, the Hang Seng TECH Index, plummeted 1.8 percent to close at 6,145 points.

On Oct 10, US President Donald Trump said the US government would impose an additional 100 percent tariff on Chinese products as well as export controls on critical software effective Nov 1, in response to China’s tightened rare earths export controls and because of frustrations over China’s apparent reluctance to buy American soybeans.

The announcement triggered a broad risk-off move in global markets, including a 2.7 percent slump in the S&P 500 Index last Friday — the sharpest one-day correction in six months. The Dow Jones Industrial Average shed 1.9 percent, and the NASDAQ 100 Index tumbled 3.5 percent.

“Despite the possibility of a replay on how the markets reacted back in April, we believe the looming threat may be short lived, and we think that investors could use this opportunity to enter into China stocks at a more attractive price,” said Wang Kai, Asia equity market strategist at US-based financial services firm Morningstar.

James Wang, head of China equity strategy research at UBS, said he expects that the market will not retreat to the low levels recorded in April this year because more investors will buy shares at the distressed price level, there is less uncertainty about global tariffs and more clarity on the conditions for de-escalation, and the global equity markets have all risen significantly since April’s lows.

“We remain constructive in the medium term in light of earnings stabilization, improving return on equity and the US Federal Reserve rate cut cycle which should benefit HK and China equity markets,” said Louisa Fok, China equity strategist at Singaporean-based OCBC Bank’s private banking arm Bank of Singapore.

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Fok added: “The recent sharp run up of HSI has pushed valuations into the higher-end of the trading range of a multiple of 12.1 forward price-to-earnings (P/E). We expect better risk-reward accumulation opportunities should valuations pull back to around a multiple of 11 forward P/E.”

Bank of Singapore reiterates a barbell strategy with quality yield stocks to cushion market volatility amid expectations of bumpy and lengthy trade negotiations; and selective growth stocks in investment themes focusing on artificial intelligence, policy beneficiaries and better outlook post-interim results.

Global fund manager Value Partners Group said it is confident that the Hong Kong equity market continues to be supported by strong momentum. “Given ample global liquidity, it elicits passive fund inflows into the Hong Kong stock market.  Active long-only funds are still underweight China. While valuation is back slightly above average, we expect investors to continue rotating among the sectors that have higher growth visibility.”

“The potential for further interest rate cuts in the United States, continued progress in the Chinese mainland’s artificial intelligence sector, and continued southbound capital inflows will support the Hong Kong stock market,” Dah Sing Bank said in its latest market research report.

The report added that, given mixed corporate earnings performance, future earnings forecasts for Hang Seng Index constituent stocks have been revised downward. As the overall market valuation of the HSI is not cheap, this could potentially limit the HSI’s further upward breakthrough momentum.