Xi-Trump bromance hopes spring eternal for China bulls
Fears of a renewed Sino-US flareup were in evidence on Thursday as public markets again slumped, but for some analysts and investors ruminating over the previous weekend's trade-war truce, things are starting to look up for Chinese assets.
What that reveals, arguably, is just how eager some market participants are to turn bullish on China once more.
Causing anxiety on Thursday was news the chief financial officer of Huawei Technologies had been arrested in Canada and could yet be extradited to the US over the possible violation of US trade sanctions against Iran.
But that news -- rather than the arrest, which also occurred at the weekend -- was after a 90-day truce was announced by the US and China at the G20 summit to allow for bilateral talks, effectively removing the threat of stinging tariff increases on January 1. The US has already imposed a 10% tariff on up to $250 billion of Chinese goods but was threatening to increase that to 25% in the new year, spurring an inevitable Chinese retaliation.
“Markets and sectors that have been most impacted should respond positively to the outcome in the near term, in particular, China A-shares, North Asian bourses and exporters,” he said in an investor update published on Monday.
A recent roundup of market views -- before the 90-day trade truce was announced -- also hints at a growing latent buying interest in Chinese stocks from investors currently on the sidelines. The Shanghai Shenzhen CSI 300 Index of mainland Chinese shares is down more than 20% so far this year, after all.
Giving them some succour this week was Jack Siu, a senior Asia-Pacific investment strategist at Credit Suisse.
"Despite short-term volatility, we expect more upside for China equities in the coming weeks,” he told FinanceAsia.“With the ceasefire outcome of the Trump-Xi meeting which we anticipated, we remain positive on H-shares, the shares of Chinese companies listed in Hong Kong.”
In the case of debt markets, Credit Suisse expects five-year Chinese government bonds to yield 3.4% over the next three months and 3.3% in 12 months' time, implying some downside on prices as economic optimism improves. But if the Trump-Xi meeting had gone badly, the corresponding numbers would have been 3.1% and 3.0%, it said.
Also in a bullish frame of mind was UBS Securities strategist Ting Gao: “We believe the outcomes of this productive meeting can offer unlimited possibilities for both the US and China, which is ahead of market expectations," he said in a report, also on Monday.
Given how markets are performing this week though, maybe it's the bulls that are getting ahead of themselves.
BEGINNING OF END OR END OF BEGINNING?
In a tweet on Tuesday, Trump hinted that he was willing to extend the 90-day truce, if needed, to successfully conclude negotiations with China, which arguably underlines the idea that the dispute has entered a more constructive, drawn-out phase that puts paid to a worst-case scenario of an all-out trade war.
But perhaps looking for that essential trade trigger that spurs a rush of capital back into China and lifts all asset prices is actually a false quest because the underlying issues are just too complicated.