Our special series "China Mid-year Snapshot" --- today we take a look at China's financial markets. Uncertainty in trade relations has been a major factor roiling stock markets globally during the first half of 2019. Our Lily Lyu explains what's the impact from trade war on the Chinese mainland stock markets and if investor confidence wanes.

The SH COMP has wiped off more than one-third of its gains since the beginning of 2019, after a change of course in May, due to the escalation of trade wars.

LILY LYU CGTN "So the big question is how the stock market is pricing in the impact of the trade war? It is challenging to find a definitive answer. But let's look at a brief study of market history. There have been three episodes in history when Chinese exports to the US fell as deep as or deeper than it does now: during the 2001 US recession, 2008 global financial crisis, and the significant slowdown in 2016 after the stock market bubble burst."

According to a report by BOCOM International, the PE ratio of the SH COMP has fallen to the level seen in the latter two episodes.

Some analysts say that the market response to the trade war is less severe than that during the previous episodes. So far, Chinese exports to Europe, now a larger part of China's foreign trade than the US, have remained resilient. The report said that the market seems to be pricing in only the slowdown of Chinese exports to the US, while anticipating exports to other regions and countries will be stable. In the meantime, earnings growth has recovered significantly during Q1, confirming evidence that China's short economic cycle has started to turn around. And this was echoed by the International Monetary Fund.

TOBIAS ADRIAN, DIRECTOR OF MONETARY & CAPITAL IMF "China has managed to sustain a relatively high growth rate. Our forecast for this year and for next year, are growth rates above 6%. The overall leverage ratio has stabilized in China and the leverage ratio in some parts of the financial system is declining. This is very good from a financial stability point of view."

Optimism in the Chinese economy is also reflected in investor interest in China's stock market. MSCI last month increased the weighting of A-shares in its indexes to 10%, a move likely to trigger more than $80 billion of fresh foreign capital inflows. Both FTSE Russell and S&P Dow Jones Indices will start adding Chinese stocks to their global benchmarks. Some say this is a game changer.

And just last week, on June 17th, the long-awaited SH-LONDON stock connect went alive---a mechanism designed to deepen global connectivity for both markets.

YANG ZONGNING CONSULTANT, GUODU SECURITIES "Whether it's MSCI or the Shanghai-London Stock link - they all will help regulate the A-share market. From this perspective, these two mechanisms will be beneficial for China's stock market regulation."

LILY LYU CGTN "The market appears to have priced in the base case of the trade war, but the probability of the risky scenario is rising. What can we do? Prepare for the worst and hope for the best. Short-term noises can be overwhelming, but we continue to believe in the long term stability and prosperity of the Chinese financial market.