Donald Trump’s threats of a trade war with China is sending jitters through the hedge-fund community.

Pinpoint Asset Management and SPQ Asia Capital have recently cut a measure of risk called net exposure -- the difference between bullish and bearish bets -- for hedge funds that invest in China. FengHe Asia Fund, which focuses on China, Taiwan and Vietnam, has reduced its allocation to Chinese stocks to the lowest level since 2012.

“The trade spat is the last straw,” said Matt Hu, co-founder of Singapore-based F&H Fund Management who manages the $240 million FengHe Asia Fund, who started paring Chinese financial and manufacturing stocks last year in favor of Vietnamese companies.

China’s equity market has been recovering from its mid-2015 crash, helping power the best performance in eight years in 2017 for hedge funds investing in the region. But the gains are imperiled by Trump’s determination to wring concessions from Beijing. Elevated U.S.-China tensions spiraled into threats of tit-for-tat tariff retaliations this week, which some analysts predict could cut as much as 0.5 percentage points off China’s economic growth. The Shanghai Composite Index fell 4.8 percent this week through Thursday.

Some domestic managers and offshore China hedge funds have reduced their holdings amid growing trade worries, William Ma, chief investment officer of the $23 billion Gopher Asset Management unit of Chinese wealth manager Noah Holdings, said in an interview. Average net exposure for Asia long-short hedge funds has dropped to 40 percent, from about 50 percent, over the first four months of this year, said Richard Johnston, Asia head of Albourne Partners.

“Many still don’t think fundamentals have changed, so I didn’t expect to see a large reduction,” said Johnston, whose firm advises clients on more than $450 billion of alternative investments including hedge funds. “Most have learnt from experience not to try to time the market. The last few days may have spooked some a bit.”

A Eurekahedge index tracking Greater China-focused equity long-short hedge funds gained 4.6 percent in the first five months, far behind the 32 percent surge for the full year of 2017.

Pinpoint Asset Management slashed net exposure in its roughly $1.4 billion China-focused hedge fund by about 20 percent to the lower half of the 30 percent to 50 percent range it has historically maintained, said Curtis Man, a Hong Kong-based executive director. SPQ Asia Capital has cut the same risk measure of its Greater China long-short equity hedge fund by about 10 percentage points this year, said Chief Operating Officer Gregoire Dechy.

Pinpoint, which oversees $3.7 billion in various funds, had cut its exposure as early as last and increased it after market selloffs earlier this year. Over the past two weeks, it reversed course again as tensions started to flare up.

Pinpoint has also turned cautious towards Chinese companies with export-dependent businesses since the beginning of the year, said Man. About three months ago, it started taking bearish bets on some Chinese makers of automobile and auto parts, he said.

China announced in May it was cutting import duties on passenger cars in a gesture to further open a market that has been a prime target of U.S. complaints. On Monday, President Donald Trump ordered his trade representative to identify $200 billion more of Chinese imports to be slapped with additional tariffs, adding to $50 billion worth of Chinese products subject to punitive duties. China vowed it would retaliate "forcefully".

The trade dispute compounds worries about interest rate hikes and high market valuations, SPQ’s Dechy said of the firm’s decision to trim risks. SPQ’s hedge fund had an average net exposure of around 30 percent in the last four-and-a-half years, Dechy said, declining to disclose the fund’s assets and other details.

The Federal Reserve raised interest rates on June 14 and signaled a path of faster increases this year, sending stocks down. Last year’s 52 percent rally pushed the price-earnings multiple of MSCI China Index, which includes Chinese technology giants listed offshore, to a post-2010 high.

Since November, the FengHe Asia fund has halved the amount of capital it allocates to bullish and bearish bets on Chinese stocks to about 30 percent of its assets under management, the lowest in six years, Hu said. The fund is also shorting Chinese automakers because of industry oversupply, high inventory and the uncertainties associated with the trade row, he said.

Since April, the fund has allocated 10 percent more of its assets to Vietnamese stocks, including Airports Corp of Vietnam JSC, Vinhomes JSC, the nation’s largest residential property developer, and Hoa Phat Group JSC, the country’s biggest listed steel producer. The fund is still bullish on Chinese health-care and other domestic consumption-related companies, Hu said.

“Chinese manufacturing has come under a lot of pressure because of rising costs and lower margins,” said Hu, who expects multinational companies will relocate manufacturing facilities from China to Vietnam.