U.S. President Donald Trump and Chinese President Xi Jinping engaged in discussions following a bilateral meeting at Gimhae International Airport, on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Busan, South Korea. This meeting highlights ongoing efforts to ease tensions between the two nations amid a complex economic relationship.
The recent trade truce between the United States and China has introduced a sense of renewed possibility for foreign investors, who have historically approached the Chinese stock market with caution. This truce, the longest of its kind amid ongoing disputes, reduces import tariffs on Chinese goods, relaxes regulations on rare earth exports, and permits Chinese companies to access certain U.S. technologies.
Despite the positive developments, reactions in the market have been tepid. Experts emphasize that while the truce alleviates some concerns, the lackluster specifics of the agreement have failed to rally investors fully. Kristina Hooper, chief market strategist at Man Group, noted that while the deal may not dramatically alter the landscape, it encourages offshore investment in China, easing fears of potential divestment.
Chinese stocks have seen a remarkable resurgence, with the blue-chip stock index climbing by 20% this year, outpacing many major markets. The Hong Kong Hang Seng index has similarly performed well, gaining 31% and surpassing even the Nasdaq. Nevertheless, foreign investments remain cautious, sticking largely to sectors tied to artificial intelligence and self-sufficiency initiatives while pulling back from broader market exposure.
According to LSEG Lipper data, foreign investors have withdrawn $3.9 billion from funds concentrated on Chinese equities this year. Despite China’s economic power, its stock market remains underrepresented in global portfolios. Financial services firm Morningstar reported that large global funds had only a 1.43% exposure to China by the end of September.
Cusson Leung, chief investment officer at KGI, expressed optimism about increasing exposure to Chinese assets, motivated more by anticipated economic recovery than the trade discussions.
The interplay between competition and cooperation in the U.S.-China dynamic presents both challenges and opportunities for investors. JP Morgan Asset Management’s Chaoping Zhu remarked that while both nations intensify efforts to secure their supply chains, opportunities arise for domestic players in various sectors.
Analysts from BNP Paribas and Goldman Sachs predict robust domestic factors driving stock growth. Goldman forecasts that by the end of 2027, the mainland and Hong Kong indexes could see increases of roughly 30% due to favorable policy, economic growth, and inflows of capital.
Despite these positive indicators, pessimism still lingers. Investors remain wary and doubtful about the sustainable nature of the current truce, as conveyed by Devesh Divya from Standard Chartered. He pointed out that while uncertainty has eased, the business landscape remains challenging for multinationals seeking to invest in China.
Although the recent developments signal a step toward improved U.S.-China relations, caution is advised, as both countries navigate a complex web of competition and cooperation in the economic arena.
