{"id":64601,"date":"2017-07-19T00:53:29","date_gmt":"2017-07-18T22:53:29","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/china-us-detente-eases-investor-fears\/"},"modified":"2017-07-19T00:53:29","modified_gmt":"2017-07-18T22:53:29","slug":"china-us-detente-eases-investor-fears","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/china-us-detente-eases-investor-fears\/","title":{"rendered":"China-US d\u00e9tente eases investor fears"},"content":{"rendered":"<ul>\n<li> <em> <strong>The meeting between President Trump and President Xi in<br \/>\nApril removes a cloud hanging over the equity market.<\/li>\n<li> This comes at a time when fears over debt levels have been<br \/>\nwell discounted, while growth appears to have stabilised nicely<br \/>\nat a relatively high level. Furthermore, corporate earnings are<br \/>\nstarting to surprise positively.<\/li>\n<li> As long as the apparent mood of compromise set by Trump and<br \/>\nXi persists, investors are likely to feel increasingly confident.<\/strong> <\/em><\/li>\n<\/ul>\n<p>The results of Donald Trump\u2019s meeting with Xi Jinping in Beijing last April alleviated the worst<br \/>\nfears provoked by the protectionist rhetoric and aggressive posturing that characterised the new<br \/>\nUS president\u2019s election campaign. Just a month later, a 10-point package was announced that was<br \/>\npromoted as \u2018an early harvest\u2019 from a 100-day plan to reset the trade relationship between China<br \/>\nand the US.[[Financial Times, 12 May 2017.]]\n<p>Some of China\u2019s concessions, such as its agreement to open its market to US-owned payment<br \/>\nprocessors and credit rating agencies, were dismissed by critics as having been already more-orless<br \/>\nsettled. However, China\u2019s commitment to resume US beef imports and quicken its approvals of<br \/>\ngenetically modified crops struck an encouraging note, as did a reciprocal US resolution to encourage<br \/>\nexports of liquid natural gas to China, allow imports of cooked poultry from the country, and extend by<br \/>\nsix months a \u2018no action letter\u2019 to the Shanghai Clearing House for failing to register derivatives-related<br \/>\noperations with the US authorities.[[Financial Times, 12 May 2017.]]\n<p>These indications of co-operation rather than confrontation should encourage investors and help<br \/>\nstimulate cross-border direct and portfolio flows between the world\u2019s two largest economies, although it<br \/>\nis difficult to identify outright winners and losers from the summit\u2019s pronouncements. President Trump<br \/>\neven seemed to endorse President Xi\u2019s \u2018One Belt, One Road\u2019 project, usually viewed as a threat to US<br \/>\nstrategic interests, by sending a delegation to a major summit on the scheme held in Beijing on 13 May.<\/p>\n<p>That the two leaders could have a positive dialogue should also serve to contain the downside risk<br \/>\nscenario on the geopolitical front. This is particularly important at a time when North Korea is pushing<br \/>\nahead with its nuclear weapon ambition, and South Korea is responding with the deployment of the<br \/>\nUS-made THAAD missile system much to China\u2019s displeasure. The Xi-Trump friendliness also struck<br \/>\na good balance to the heightened sense of geopolitical competition between the two superpowers,<br \/>\nparticularly after the recent \u2018pivot towards China\u2019 by President Duterte of the Philippines.<\/p>\n<p><strong>STABILIZED GROWTH OUTLOOK<\/strong><\/p>\n<p>This comes at a time when investors are beginning to feel less nervous about the Chinese economy.<br \/>\nMoody\u2019s downgrade of China\u2019s credit rating from Aa3 to A1 barely registered with Chinese stock<br \/>\nprices, as concerns about the country\u2019s shadow banking system and fears over escalating debt levels<br \/>\nhave already been persistently flagged over the last few years.<\/p>\n<p>Certainly, there are problems in the Chinese economy and international investors face hazards when<br \/>\nentering the market, such as governance and transparency issues. There is also uncertainty about<br \/>\nthe actions of regulators, whose clumsy attempts to stem the market collapse in the summer 2015<br \/>\nare still a disturbing memory.<\/p>\n<p>On the other hand, China has a booming middle class that will continue to grow over the next<br \/>\ndecade. It remains a high-saving, high-investment economy that is on track to surpassing GDP growth<br \/>\nexpectation of around 6.5% a year for the second year running. Recent economic data continue to<br \/>\nsuggest an economy that is firmly on track for a robust soft landing, upon which corporate earnings<br \/>\nmay yet see upgrades as we progress into the next 12 months.<\/p>\n<p><strong>A CHANGING MARKET<\/strong><\/p>\n<p>The two largest constituents of the MSCI China Index are now Tencent and Alibaba, which together<br \/>\ncarried close to 28% weighting (source: Bloomberg, 29 June 2017). In fact, so-called \u2018new economy\u2019<br \/>\nstocks already account for close to 40% of the Index. This is a transformational change from five years<br \/>\nago and investors should not continue to view China equities with the same set of risk schemas. The<br \/>\nbroader and \u2018energised\u2019 index, coupled with a shift in policy mindset towards sustainability over the<br \/>\npace of growth, should mean that risk perceptions are likely to moderate when updated.<\/p>\n<p>Despite consensus earnings per share growth of around 12-13% per annum over the next three<br \/>\nyears, the MSCI China is still trading at 13.5x for 2017, declining to 10.5x in 2019 (source: Bloomberg,<br \/>\n29 June 2017). Such valuation leaves considerable room for the current rally to extend itself driven by<br \/>\nboth growth and potential re-rating.<\/p>\n<p><strong>International investors have greater opportunity to benefit from China\u2019s continued rise.<br \/>\nAs long as the apparent mood of compromise set by Trump and Xi persists, investors are<br \/>\nlikely to feel more confident about raising their allocations to China stocks, and increasing<br \/>\nexposure to the country\u2019s new economy sectors.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The meeting between President Trump and President Xi in<br \/>\nApril removes a cloud hanging over the equity market.<br \/>\nThis comes at a time when fears over debt levels have been<br \/>\nwell discounted, while growth appears to have stabilised nicely<br \/>\nat a relatively high level. Furthermore, corporate earnings are<br \/>\nstarting to surprise positively.<\/p>\n","protected":false},"author":1,"featured_media":64599,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1809,1655,2073,1651,2087,1650,2068,2239],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/64601"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=64601"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/64601\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/64599"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=64601"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=64601"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=64601"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}