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When US presidents opine on China, it’s not often excellent news for traders in Chinese language equities. Not less than in recent times, bulletins have tended to mark punitive measures similar to blacklists, export restrictions and tariffs.
That pattern was bucked on Friday. Chinese language shares rose after Donald Trump remarked on a “pleasant” dialog with Xi Jinping and hinted at a doubtlessly softer strategy towards tariffs. The diplomatic cordiality between geopolitical rivals could not assure lasting progress on commerce talks. But for native shares, it arrives at an ideal time.
Blue-chips similar to Tencent, Alibaba and JD.com gained 3 per cent on Friday, as did Hong Kong’s benchmark index which is especially delicate to geopolitical tensions. The Grasp Seng rose about 2 per cent, bringing positive aspects to six per cent since final week. That means aid that Trump says he would slightly not have to make use of tariffs in opposition to on Chinese language items — an enormous query hanging over valuations for the previous yr.
China’s exports to the US account for about 4 per cent of its GDP. Within the brief time period, tariffs drive up prices for Chinese language exporters and squeeze margins. Their long-term results, similar to weakening the renminbi and inflating danger premium for Chinese language shares, increase considerations about capital flight. If Trump is taking a extra versatile strategy, these measures could find yourself getting used as a bargaining instrument with China slightly than an finish purpose.
That in flip permits traders to think about different components that might assist Chinese language shares in future. Beijing is attempting to enhance shareholder returns. Massive-scale stimulus measures and plans to inject round Rmb1tn ($138bn) in long-term capital into the monetary system ought to enhance sentiment.
Chinese language corporations paid out a file Rmb2.4tn in dividends final yr whereas share buybacks additionally hit an all-time excessive, based on official information. This push has significantly benefited high-dividend shares, similar to banks, insurers and utilities. In the meantime, regulators have been directing insurers and mutual funds to extend native inventory holdings — which might draw extra capital into the nation’s markets.
Valuations stay comparatively low, with China’s blue-chip CSI 300 Index buying and selling at round 1.3 instances e book worth. Against this, the S&P 500 stands at round 4 instances that stage.
The reliance of native exporters’ earnings on geopolitical dynamics means their share costs will stay extremely delicate to unfolding developments within the coming months. However for now, there’s sufficient excellent news — each actual and rhetorical — to assist short-term positive aspects.
june.yoon@ft.com
