Traders are hoping that the planned meeting between President Joe Biden and China’s Xi Jinping will provide a sign of thawing relations, and boost sentiment for the Asian nation’s beaten-down assets.
Wednesday’s meeting in San Francisco will mark a crucial moment in what is Xi’s first visit to the US since 2017, when he met with the then-President Donald Trump. It will also be his first conversation in a year with Biden, who largely kept intact the tariffs Trump imposed on a range of Chinese goods and also championed curbs on China’s access to advanced technology.
An easing of tensions between the two superpowers may be the inflection point to lure investors back to China. Equities and currency traders are keeping a close watch given that the nation’s stocks are reeling from the years-long property crisis and an exodus of global funds, while the yuan has fallen to a 16-year low against the dollar.
“The signal that there are more efforts to put a floor around bilateral relations or even some modest improvement in the short term could provide a temporary boost to the investment sentiment,” said Xiaojia Zhi, head of research at Credit Agricole CIB.
The two nations have taken recent steps to ease the strains. Biden and Xi are set to announce an agreement that would see Beijing crack down on the manufacture and export of fentanyl — which is used to make the deadly synthetic opioid, according to people familiar with the matter. Separately, Beijing may also unveil a commitment for Boeing’s 737 jetliner during the APEC Summit, as per another report. China, a top soybean importer, bought more than 3 million tons of the commodity from the US last week in a goodwill gesture ahead of the talks.
“The news on China’s purchase of US soybeans is a prelude to warming of bilateral relations,” which are key to determining foreign capital flows, said Hao Hong, chief economist at Grow Investment Group. “At the least, China-US relations won’t get worse.”
READ: Templeton Says Biden-Xi Meeting May Lift China Stocks
Here are some key areas to watch:
Technology
China, the world’s largest semiconductor market, has been grappling with growing US sanctions on its technology sector. A sign of thaw in the dispute could bolster investor sentiment for a range of companies from Apple Inc. to chip bellwethers Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and Nvidia Corp.
“Internet and tech hardware stocks are more likely to move because they got smashed pretty hard, but I think broadly China will benefit,” said Conrad Saldanha, New York-based senior portfolio manager at Neuberger Berman’s emerging-markets equities team. “Any dialogue is a positive step for both economies, and at this point China has more to gain from it, given how much the economy slowed down and how much negativity there is in that market.”
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Meanwhile, China’s tech stocks such as Semiconductor Manufacturing International Corp. and Hua Hong Semiconductor Ltd. are being favored by local investors for their ability to work around the US curbs.
Huawei’s surprise debut of a smartphone with an advanced made-in-China 5G processor lifted stocks of local component producers such as Will Semiconductor and Maxscend Microelectronics Co. These firms may get a boost if tensions ease or if Xi reinforces resources toward achieving self-sufficiency in advanced technologies.
The leaders may discuss ways to “make the technology industry more transparent to each other or set up a regular communication channel,” said Redmond Wong, a market strategist at Saxo Capital Markets in Hong Kong.
READ: Huawei Suppliers Top Asia Stock Benchmark to Defy Bad October
Green Energy
An emphasis on green goals may spark a rally in stocks tied to electric vehicles such as the top battery producer Contemporary Amperex Technology Co., and solar power equipment maker LONGi Green Energy Technology Co.
“We can look at advanced manufacturing sectors including solar, lithium battery and new energy, which may have more restrictions easing from the US,” said Wu Wei, fund manager at Beijing Win Integrity Investment Management.
China is the leader in the EV race with a more than 80% share of the world’s lithium-ion battery capacity. Biden wants to change that. His signature Inflation Reduction Act offers tax credits for US-made EVs. Playing catch up is the European Union, which is investigating Beijing’s EV subsidies in an attempt to ward off cheap imports.
EV manufacturers such as BYD Co. will also be in focus if both countries agree on some form of easing amid rising protectionism in the industry globally.
READ: Xi Says Green Projects Will Anchor China’s Overseas Spending
FX Watch
Some investors are considering what kind of momentum the ties between the two nations would have beyond the summit, whether there will be steps to ease regulatory curbs, encourage private investment and revive business sentiment, according to Louise Loo, lead economist at Oxford Economics.
“That will be positive because regulatory uncertainty in China is one of the reasons why the FX continues to be so weak and the stock market continues to exhibit such weak sentiment,” she said.
China has spent much of the year trying to stabilize the yuan, Asia’s worst performer this year after the Japanese yen and the Malaysian ringgit. The People’s Bank of China has kept such a tight range on the reference rate — its favorite tool for guiding the currency — that a gauge of its swings collapsed to levels last seen in 2010.
--With assistance from Iris Ouyang and Yiqin Shen.
