Chinese equities are poised for a rebound after the Trump-Xi summit produced a one-year tariff detente, removing a key risk for investors despite a lack of concrete breakthroughs on other core issues.
"The most salient point is that ‘anything but China’ and the whole mantra of ‘China is uninvestible’ died," said Louis Gave, co-founder of Gavekal Research.
While the iShares MSCI China ETF (MCHI) was dragged down on Friday by a 4.06% plunge in Alibaba Group, the cooling of tensions between Washington and Beijing is expected to draw investors back to a market they had largely shunned. The offshore yuan held steady near 7.25 per dollar, while U.S. 10-year Treasury yields hovered around 4.5 percent, indicating a cautiously optimistic market response.
The summit, held in Beijing on May 15, is seen as a successful reset of relations. "It’s incredibly positive for global growth and stability because the U.S. and China are finally showing some semblance of stability and some semblance of interaction,” said Aniket Shah, global head of Washington, Sustainability and Transition Strategy for Jefferies.
The meeting's most significant outcome for markets is an anticipated one-year extension of the current trade truce. This includes a ceasefire on new tariffs and export restrictions on technology by the U.S. or rare-earths by China, according to Scott Kennedy, a China expert at the Center for Strategic and International Studies.
President Trump also announced "fantastic trade deals," though specifics were limited. U.S. Trade Chief Jamieson Greer said the U.S. expects China to buy “double-digit billions” of dollars in agricultural products over the next three years. Additionally, China reportedly agreed to order 200 Boeing jets, its first major purchase of U.S. aircraft in nearly a decade, in a deal that also benefits General Electric with an order for 450 aircraft engines.
Despite the positive tone, major disagreements over U.S. tech export restrictions and industrial policy remain unresolved. Kennedy noted that China gave little on its economic red lines, securing a "grand bargain" on its own terms.
The renewed stability is the key takeaway for money managers. "Investors should be quite satisfied to take ‘renewed US-China trade conflict’ off that list of risks,” said Philip Wool, who manages the Rayliant-ChinaAMC Transformative China Tech ETF (CNQQ). Wool noted that Beijing's push for technology self-sufficiency has strengthened its competitive position, particularly in AI-related technology exports.
Lingering risks remain, chiefly surrounding Taiwan. President Xi reportedly warned the U.S. that mishandling the situation could trigger conflict. President Trump told reporters he has not yet decided on a proposed $14 billion arms package for Taiwan, stating he would make a decision "over the next fairly short period.”
This article is for informational purposes only and does not constitute investment advice.
