China investors are counting on the summit between Xi Jinping and Donald Trump to deliver just enough to sustain the detente trade underpinning stocks and the yuan.
Rather than betting on a sweeping reset in relations, market watchers are focused on whether the two leaders can avoid renewed friction on trade, technology and geopolitics. Even without major breakthroughs on those key issues, a broadly constructive outcome is seen keeping the positive market sentiment intact.
Such cautious optimism has investors choosing tactical rather than structural bets on Chinese assets, which have gained since the two sides reached a trade truce in South Korea last October. Staying long the yuan and selectively buying stocks poised to benefit from currency stability, export resilience, domestic technology investment and demand for artificial intelligence are among the favored trades.
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China investors are hoping the Xi-Trump summit will provide enough stability to sustain the current positive sentiment in stocks and the yuan. They are focused on avoiding renewed trade friction rather than expecting a complete reset in relations.
The summit could pose a threat to chip stocks if a deal is struck for China to acquire ASML lithography machines in exchange for rare earth materials. This could lead to lower chip prices and reduced pricing power for companies like TSMC, SK Hynix, and Samsung.
Goldman Sachs believes the yuan is undervalued by over 20%, citing China’s strong export performance and external surplus. Improving US-China ties and a weaker dollar are also contributing factors to the expected appreciation.
The summit’s agenda includes critical issues such as Taiwan, trade, rare earth export controls, the Iran war, and artificial intelligence. Taiwan is considered the biggest risk, with both sides having strong but opposing views.
Southeast Asian nations are watching for changes in US tariffs on Chinese goods, as this could impact their own export competitiveness. Additionally, any agreement to reopen the Strait of Hormuz could provide relief from energy price shocks.
“The ideal scenario would be the status quo to continue,” said Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management in Hong Kong. “Tariffs and trade tensions have taken a backseat on investors’ minds for now, given the supply risk to energy and petrochemicals.”
Trump’s arrival will mark the first visit by a sitting US president to China in nearly a decade. Policy experts don’t anticipate major agreements to come out of the two-day meeting, which has been rescheduled once as Trump focused on the conflict with Iran. However, it may produce deals at the margins — like Chinese purchases of additional US soybeans or Boeing planes.
China’s markets have had a good run ahead of the event, suggesting investors see little risk of a sharp deterioration in ties between the world’s two largest economies.
Up about 1.7%, the onshore yuan is Asia’s top-performing currency against the dollar over the past three months, and is trading at its highest level since early 2023. It has been buoyed by improving US-China ties and weakness in the greenback.
Goldman Sachs Group Inc. expects the currency to keep rising over the coming year, arguing that it is more than 20% undervalued. The yuan remains well below levels justified by China’s export strength and external surplus, strategists including Kamakshya Trivedi wrote in a May 8 report.
The Iran war is expected to be high on the agenda. The US and China both want to see the reopening of the Strait of Hormuz, through which a fifth of global oil and gas flows passed before the conflict. The key question for Beijing is whether it’s prepared to put pressure on Tehran, and what quid pro quo it would seek from Washington in return.
“If the 2025 Busan summit is any guide, the engagement could help catalyze RMB appreciation and a risk-on equity rally should Middle East tensions de-escalate,” Citigroup Inc. economists Xiangrong Yu and Xinyu Ji wrote in a note. “We expect the economic agenda should reinforce short-term stabilization in bilateral relations, but not reverse structural headwinds.”
Broadly, Xi and Trump are expected to seek an extension to their trade truce. Markets do remain vulnerable to any negative surprises, with a setback in talks likely to reverse sentiment and erode recent gains.
That said, Goldman’s equity strategists predict stocks could see near-term upside as investor expectations stay low ahead of the summit.
The CSI 300 Index, a benchmark of onshore shares, jumped 1.6% on Monday. The measure is up about 11% so far this quarter, though it has lagged the broader Asian benchmark that’s been boosted by a surge in tech stocks in South Korea and Taiwan.
“What that summit can do is it can compress some of the uncertainty premium that continually persists between the US and China from a geopolitical perspective,” said Christopher Hamilton, head of client investment solutions for Asia Pacific ex-Japan at Invesco Ltd. “If you can bring a little bit more certainty to that relationship and drive that risk premium down, that’s ultimately going to be very positive for Chinese equities.”
With assistance from Kevin Dharmawan.
This article was generated from an automated news agency feed without modifications to text.
