China Market Update: US-China Trade Negotiators Climb Switzerland's Face Of The Eiger, Week In Review
CLN
Asian equities cheered the US-UK trade deal, as Japan, Taiwan, the Philippines, and Pakistan outperformed, while India and China underperformed.
Excluding today's downdraft, India's equity market resilience reminds me of the R.E.M. lyric 'It's the end of the world, and I feel fine'. Hong Kong and Mainland China had very light volumes, in advance of the US-China trade talks, which may indicate either a 'wait and see' approach or skepticism about a positive outcome. I suspect local investors might not understand that we are transitioning to Resolution, the third stage of the 'Art of The Deal', following stage 1's hard negotiation and aggressive opening, and stage 2's chaos, disruption, and brinkmanship. At least, that's my hope!
Today's biggest news that weighed on technology and growth stocks were the disappointing financial results from China semiconductor companies, including Semiconductor Manufacturing (SMIC), which fell -4.76%, and Hua Hong Semiconductor, which fell -7.94%. Mainland-listed technology subsectors all underperformed, including technology hardware, electric equipment, communication equipment, semiconductors, and software. Hong Kong-listed growth and internet stocks, except for Alibaba, which gained +1.73%, underperformed, as old-school value plays outperformed.
Mainland investors bought the dip in Hong Kong-listed growth stocks today, making a net $519 million purchase, snapping the rare two-day net sell streak.
After the close, the People's Bank of China (PBOC) released the Monetary Policy Implementation Report for Q1 2025, which noted Q1 GDP growth of +5.4% year-over-year (YoY). The report stated that 'the impact of external shocks is increasing, the momentum of world economic growth is insufficient, trade protectionism is on the rise, and geopolitical conflicts continue to exist.' To counter this, the PBOC will 'implement a moderately loose monetary policy'.
Consumption subsidies are having an impact as 'the retail sales of daily household appliances increased by 38.4% YoY, and the sales of automobiles increased by 11.2% YoY,' while the benefits of the "Special Action Plan for Boosting Consumption" are only just starting.
China's exports increased 8.1% in April versus expectations of just 2.1%! While exports to the US 'plunged' -21% to $33 billion from March's $40 billion and January's $47 billion (February fell, due to Chinese New Year), exports to Asia and the EU increased YoY and month-over-month (MoM). Yes, April imports were negative, but remember that commodities' prices heavily influence them. You should look not at the imports' value but the raw tonnage. Import tonnage was mixed. There is no significant evidence of why China is negotiating hard with the US, as Asia exports are up +20% YoY and EU exports are up +8% YoY. At the same time, China would suffer from US exports contracting significantly. Perfect timing for the Switzerland meeting!
I saw the following from a European bank's morning note: 'Family offices in Asia are reallocating portfolios, with some exiting the U.S. entirely in favor of Asia and Europe, especially Hong Kong and Mainland China, citing uncertainty and recession risks.' This marks a shift from the U.S., once a top investment destination, as investors take profits and seek better valuations elsewhere.' They didn't cite, though it appears to be from CNBC's Robert Frank's April 3rd article, despite the firm being a trading counterparty and custodian. Still, they didn't mention their trading desk flows or custody movements. By no means the end of American Exceptionalism, but a global rebalance of the US equity overweight is likely occurring.
I spent several college summers working in New York City at First Manhattan Co. for Mr. Muccia, a family friend. For Berkshire Hathaway fans, they will recognize FMC and its founder, Sandy Gottesman, who sat on the board for many years. If I mumbled or stumbled on an answer to a question, Mr. Muccia drilled into me being direct and articulate by having me leave the room, 'collect my thoughts,' and provide a succinct answer to him. A long-time friend and associate told me yesterday's post on Washington, DC, and the Holding Foreign Companies Accountable Act (HFCAA) was not clear to him. I appreciate the advice! Why has the US-listed China stock potential delisting become an issue recently?
Ultimately, focusing on this issue could jeopardize Trump's 'big, beautiful deal, " so I believe it will likely fade as trade negotiations progress.
Holding Foreign Companies Accountable Act (HFCAA) requires the SEC and PCAOB to state annually that they can access and audit the auditors.
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