After Trade Truce, China Becomes a Bit More Investible

• China's latest trade truce with the United States removes one big deterrent for foreign investors who've been circumspect all year about investing in a stock market that's outrun most other major ones with its strongest annual run since 2019. Foreign money managers have so far been both measured and selective participants in a rally that has pushed Chinese stocks to multi-year highs, fearful of pressures from deflation, weak consumption in the world's second-largest economy, and trade tensions.
• Thursday's deal between China and U.S. President Donald Trump removes one source of worry, to an extent. The year-long truce is the longest the two feuding sides have had in a fractious relationship, and it reduces import tariffs on China, removes some controls on Chinese rare earths exports, and allows Chinese firms to receive some U.S. technology. Beyond those encouraging headlines, the specifics of the deal left markets unimpressed and analysts pointing to the breakthrough and commitment to cooperation as the best part of the truce.
• "I don't think this trade deal changes anything dramatically, but it helps move the needle on encouraging offshore investment in China," said Kristina Hooper, New York-based chief market strategist at the Man Group.
• Boosted by policy measures and Chinese artificial intelligence forays, its blue-chip stock index is up by a fifth this year, while the more accessible Hong Kong Hang Seng index is one of the world's top performers this year, with 31% gains, bigger than Nasdaq's 3%. But foreign money has played it safe, staying in sectors around AI and China's self-sufficiency initiatives while avoiding broad exposure.
• Relative to its economic might, which is a fifth of world GDP, China is underowned. Data from financial services firm Morningstar showed large global funds, on average, had a 1.43% exposure to China at the end of September.

(Source: Reuters)