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Business Times
6 days ago
- Business
- Business Times
Goldman Sachs expects stronger yuan to boost Chinese stocks
CHINESE stocks are expected to benefit from further gains in the yuan, which has been showing resilience amid the country's trade spat with the US, according to strategists at Goldman Sachs. Every 1 per cent appreciation of the yuan versus the US dollar can boost Chinese equities by 3 per cent thanks to factors including improved corporate earnings outlook and stronger foreign inflows, strategists including Kinger Lau wrote in a note on Monday (May 26). Earlier this month, the bank raised its 12-month forecast for the yuan to 7 per US dollar, from 7.35. 'Chinese stocks tend to perform well when the currency rises,' Lau and his colleagues wrote. The outlook for the currency lends support to their 'overweight stance' on Chinese stocks, they said, adding that consumer discretionary, property and broker stocks typically outperform under a strong currency. The MSCI China Index has recouped its losses since US President Donald Trump's Apr 2 tariff offensive, with a three-month trade truce with the US helping the market's rebound. Chinese assets overall have benefited from a diversification away from US markets as concerns about Trump's tariffs and tax cuts sustain the 'sell America' narrative. While investors continue to doubt the allure of US stocks and the US dollar, the People's Bank of China (PBOC) has sought to keep the yuan stable and add support to the economy via interest-rate cuts. The onshore yuan has gained around 1.4 per cent versus the greenback in May, and reached 7.1674 on Monday, its strongest level since November. On Monday, the PBOC strengthened the yuan's reference rate by the most since January amid the greenback's extended slide. That said, the official fixing of 7.1833 per US dollar was still weaker than the yuan's spot price, which suggests China is managing volatility and seeking to avoid a sharp appreciation such as that seen in the Taiwanese dollar. BLOOMBERG
Business Times
15-05-2025
- Business
- Business Times
China's investors signal trade truce is no panacea for markets
[SINGAPORE] The trade truce is not enough to ignite a rush into Chinese financial assets amid expectations of reduced policy stimulus and lingering uncertainty on a final deal. While Chinese stocks have rallied following the agreement, recouping their losses since the Apr 2 volley of tariff announcements, global investors appear to be staying on the sidelines. Market expectations on further government support have been tempered given the better-than-expected outcome of tariff negotiations last weekend. 'The upside appears limited unless we see further policy support or a clear improvement in earnings, as much of the recent good news is already reflected in prices,' said Eva Lee, head of Greater China equities at UBS Global Wealth Management. 'Major headwinds would be the negotiation takes longer than expected while China did not offer effective stimulus measures to stabilise the economy.' Strategists expect the yuan to rise at a measured pace against the greenback while bond yields could edge lower as deflationary pressure persists. Here's a look at what investors are saying about Chinese assets after the tariff reprieve: Stocks Stock traders have cheered the Sino-US trade de-escalation, with the MSCI China Index rising more than 4 per cent this week, extending a rally earlier in the year driven by the nation's technological advancement. Still, it may take a while to reach a final deal: in the first Trump trade-war episode in 2018, Chinese stocks went on a bumpy ride before a trade pact was finalised. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The impact of higher tariffs will trickle down to consumer demand and corporate profits, and that's likely to cast a shadow over China's nascent earnings recovery, analysts say. As it's still uncertain what tariff rates the two countries will settle for eventually, money managers are sticking to defensive and domestically oriented sectors to protect the downside. The sentiment-driven market mood means 'further volatility ahead with fundamentals taking a backseat', said Elizabeth Kwik, investment director of Asian equities at Aberdeen Investments. 'We continue to favour companies with predominantly domestic exposure and where we have higher earnings visibility.' Currency The yuan jumped to a six-month high this week in both onshore and offshore markets after the trade truce, with strategists turning more optimistic on the currency's outlook amid exporters' rising interest in repatriating their US dollar earnings. Some are expecting the currency to appreciate towards 7 per US dollar, from the current level of around 7.2. Still, Chinese authorities are expected to carefully manage the yuan's upward trend to avoid massive inflows. The People's Bank of China set the daily reference rate at a level weaker than the average forecast in a Bloomberg survey of analysts and traders on Wednesday, for the first time since November. 'While the US has softened the tariff war due to a lack of immediate near-term alternatives, the medium-term decoupling with China on the supply chain and tech fronts is ongoing,' said Ju Wang, head of Greater China FX and rates strategy at BNP Paribas. 'It is difficult to envision China allowing significant yuan appreciation, especially given that the local property market remains weak.' Bonds Government bond yields rose as the truce dampened demand for haven assets. The benchmark 10-year yield has climbed around five basis points in May, though last month it posted the biggest monthly decline since December on Beijing's monetary easing and escalated trade tensions. Bond traders have become more cautious now compared to when the reciprocal tariffs spooked investors in April and spurred a flight to safety. Still, yields may dip again, according to market watchers, as investors bet on more monetary easing to stimulate the already sluggish domestic demand even without tariffs. 'There is still room for Chinese bond yields to head lower, given that deflationary pressure will persist with tariffs imposed on China,' said Cary Yeung, head of greater China fixed income at Pictet Asset Management. 'The 30 per cent tariff in place will continue to slow China's growth. Therefore, we expect accommodative monetary policy to persist, which is beneficial to bond yields.' Commodities Oil rebounded this week on the truce. This may be a short-term relief as the trade war already appears to be reducing the volume of goods arriving in the US. Industrial metals also rose but the trade thaw may give only marginal support to aluminium, which is expected to decline this quarter amid headwinds from exports to non-US countries, according to Citigroup. 'Commodities are rebounding to price in the trade war truce between China and the US,' said Xuezhi Li, head of Chaos Ternary Futures's Research Institute. Still, 'tariffs between the two countries surely will not stay at the current low levels. There will be back-and-forth and cause blows to demand', bringing industrial metals prices lower. Gold, a haven which has risen to records amid the uncertainty, fell. BLOOMBERG
Mint
13-05-2025
- Business
- Mint
US-China trade deal: Nomura turns bullish on Chinese stocks after truce on Trump's tariffs
Nomura Holdings Inc. strategists upgraded Chinese stocks to a 'tactical overweight,' saying the trade truce between the US and China is a significant positive for the Asian nation's equities. 'These developments should reduce the US-China geopolitical risk premium that has been associated with China stocks,' strategists led by Chetan Seth wrote in a note Tuesday. Valuations remain attractive and there's scope for some global investors to return, they added. The change in Nomura's stance from neutral follows the better-than-expected de-escalation of trade tensions between the US and China after discussions over the weekend. The US on Monday said it would reduce levies on most Chinese imports to 30% for 90 days, while China's duties on US goods will drop to 10%. President Donald Trump also said Asia's largest economy has agreed to remove non-tariff barriers on imports. The deal removes an overhang and analysts are becoming increasingly optimistic that the trade truce will help drive more inflows into Chinese shares. Local markets had been on a positive path leading up to the talks over the weekend, with shares getting an earlier boost from an interest rate cut last week and policymakers' pledge to support efforts by the so-called 'stock stabilization fund.' The Chinese onshore benchmark pared gains of as much as 0.6% to trade little changed, as the reduction in tariffs lowered investors' expectations for any large stimulus from China. A gauge of Chinese shares listed in Hong Kong retraced some of the advances made on Monday, falling 1.8%. Meanwhile, the yuan climbed to a six-month high in both the onshore and offshore markets on Tuesday after the People's Bank of China set the currency fixing stronger than the 7.2 per dollar level. Nomura trimmed its overweight stance on India to fund the China upgrade. It is the first major upgrade of China allocation by strategists since the world's two largest economies agreed to a temporary reprieve in their trade war. 'Having both India and China equities as an overweight will offer Asian equity investors a natural hedge in portfolios against any trade-related volatility,' the strategists wrote. While markets have been expecting some reduction in tariffs, the outcome is much larger than expected and can bring a major relief for stocks globally. Less than 10% of respondents in a recent survey by Nomura anticipated tariffs falling below 34%. A reduction in the US-China geopolitical risk premium paves the way for the MSCI China Index to trade as high as 13 times one-year forward earnings, they wrote. The gauge is currently trading at 10.9 times on that metric, according to data compiled by Bloomberg. --With assistance from Karl Lester M. Yap. (Updates with details throughout.) More stories like this are available on
Business Times
22-04-2025
- Business
- Business Times
China may better withstand Trump tariffs this time
THE global market has made a sharp downturn following the US's implementation of reciprocal tariffs. China has been hit the hardest, facing a blanket tariff rate of 145 per cent. The MSCI China Index has since given up roughly three-quarters of its earlier gains, which were fuelled by investor enthusiasm around AI developments and renewed domestic stimulus measures. As at Apr 15, the index still recorded a decent year-to-date return of 6 per cent. Compared to other key markets, Chinese equities appear to be showing greater resilience during this downturn. Patriotic sentiment driving support China's 'fight-to-the-end' stance, with its retaliatory tariffs against the US, has resonated widely among its people. The extraordinarily high tariffs imposed on Chinese goods have thus unexpectedly helped accelerate the recovery of investor and consumer confidence; both were heavily damaged in recent years by political uncertainty and a sluggish economic outlook. Expressions of anti-US sentiment have emerged across Chinese society, with calls to boycott American products and impose higher prices on US consumers in China. A surge in patriotism has encouraged many citizens to support the domestic equity market and increase consumption as a form of national solidarity, and many view the trade dispute not just as an economic challenge, but also as a shared national mission. At the same time, China's state-backed funds have injected billions into state-owned enterprises, technology firms and exchange-traded funds to stabilise the equity market. Although state-driven capital injections have historically provided only short-term market support, they remain a crucial psychological boost. The message is clear: China is mobilising its resources and public resolve to confront and cushion the impact of trade pressures. Tariffs a drag, but present economic opportunities While public sentiment has been in China's favour during this round of tensions, the economic cost of the trade conflict remains significant. Despite Beijing's ongoing efforts to reduce its reliance on the US, a strategic shift initiated during the first term of US President Donald Trump in 2018, the US continues to be China's largest single-country export destination. Nevertheless, progress has been made. The share of Chinese exports destined for the US fell from 19.3 per cent in 2018 to 14.7 per cent in 2024. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Based on our estimates, if the 145 per cent tariff remains in place, it could shave one percentage point off China's GDP growth this year. To counter this, Chinese policymakers are actively strategising to fill the void left by the loss of US market access. One key approach is the acceleration of trade diversification efforts. China is expanding its network of trading partners and establishing new free-trade zones. In the week of Apr 14, President Xi Jinping embarked on diplomatic visits to three Asean countries – Vietnam, Malaysia and Cambodia – all of which face high double-digit reciprocal tariffs from the US. During his stop in Vietnam, 45 cooperation agreements were signed. As trade tensions with the US escalate, we anticipate an increase in regional trade collaboration, especially given Trump's continued hardline stance. His negotiations with Vietnam and Europe have so far failed to generate significant progress, with mutual tariff removal seen to fall short of his 'phenomenal' deal standard. Should these talks fail after the 90-day suspension period, many countries will turn to alternative trade alliances, offering China a strategic opportunity to position itself as a more reliable partner and to build new economic coalitions. China has launched several retaliatory measures as bargaining chips, including tariffs on US agricultural goods and the suspension of soybean import licences. Given that China accounted for roughly half of US soybean exports in 2024, this move is likely to inflict significant pressure on American farmers. To mitigate the shortfall, China has shifted its sourcing to Brazil. In addition, China restricted the export of rare earth elements, putting pressure on critical industries such as automotive, aerospace and defence. In the meantime, we believe the key to sustaining economic stability lies in China's ability to pivot towards a more consumption-driven growth model. With inflation at -0.1 per cent year on year as at March 2025, real borrowing costs remain elevated at 3.2 per cent, leaving ample room for monetary easing. Additionally, further issuance of consumption vouchers, alongside ongoing programmes such as consumer goods trade-in incentives, is expected to help boost domestic demand. Nonetheless, China faces persistent challenges in the labour market. The youth unemployment rate ticked higher in February, reflecting underlying weaknesses in job creation. In our view, restoring labour market confidence and improving household income will be essential to unlocking more sustainable, broad-based consumption growth. Chinese equities still worth holding Tariffs will inevitably weigh on China's economy, but under the current circumstances, the US is unlikely to escape unscathed either. Given the high degree of uncertainty surrounding the trajectory of tariff policies in the coming months, panic selling of Chinese equities may not be the wisest course of action. China still holds several strategic cards in this standoff, and is actively deploying a multi-pronged approach to cushion the potential impact of trade losses. These measures include rerouting trade flows, imposing controls on strategic materials, implementing targeted stimulus, and tapping into a wave of national pride to bolster domestic demand and market sentiment. Since the sharp sell-off in Chinese equities on Apr 7, signs of a rebound have already begun to emerge. Defensive, dividend-paying stocks, domestically focused businesses, and consumer discretionary names aligned with a consumption-driven economy are all well-placed to capture upside opportunities as sentiment stabilises. The writer is a research analyst with the research and portfolio management team of the B2C division of iFast Financial, the Singapore subsidiary of iFast Corp
Yahoo
17-04-2025
- Business
- Yahoo
Investor concerns over Chinese ADR de-listings resurface
SHANGHAI/SINGAPORE (Reuters) - Investor concerns over the possible forced de-listing of Chinese companies from U.S. exchanges reemerged as the tit-for-tat trade war between the world's two largest economies spread to the financial sector. During the Biden administration, Chinese companies' American Depositary Receipts (ADRs) faced significant delisting pressure due to audit disputes, causing their shares to tumble. WHY IT'S IMPORTANT More than 100 Chinese companies, including tech giants Alibaba and are listed on U.S. exchanges and have a collective market cap of around $1 trillion. Companies without a secondary listing, such as PDD which operates e-commerce platforms Pinduoduo and Temu, and Full Truck Alliance, China's "Uber for trucks", would be the most vulnerable if a forced delisting happened. Converting shares from the U.S. to Hong Kong stock exchange could drain liquidity and harm valuations. Companies may also face the risk of U.S. state funds divesting. KEY QUOTES "ADRs are the biggest hostage situation in financial history," said Fan Liwen, a portfolio manager at Shenzhen New Thinking Investment Management Co. "If you must hold ADRs, you should switch to the Hong Kong Stock Exchange. Chinese companies listed as ADRs should push for listing in Hong Kong." "Everything's on the table," was Treasury Secretary Scott Bessent's response when asked about removing Chinese stocks from U.S. exchanges in a TV interview last week. "If Chinese ADRs wish to return, Hong Kong must become their first choice," said Hong Kong's Finance Secretary Paul Chan, adding the security regulator and stock exchange had been told to prepare. BY THE NUMBERS The daily turnover for all ADRs included in the MSCI China Index is about $8.1 billion, roughly a quarter of the daily turnover of the Hong Kong market, according to Morgan Stanley. Goldman Sachs estimates that U.S. institutional investors currently own about $830bn in Chinese stocks including ADRs. Sign in to access your portfolio
