Analysis-Investors bet on stability after Trump-Xi summit as Iran war concerns linger
By Ankur Banerjee and Samuel Shen
SINGAPORE, May 18 (Reuters) – A focus on “strategic stability” at the summit between U.S. President Donald Trump and China’s Xi Jinping will ease Sino-American geopolitical risks for Chinese markets, but little progress on trade and the Iran war will keep investor excitement in check.
Trump’s first visit to Beijing since 2017 ended Friday with “more than two months of no tangible aid or major progress on trade from Beijing to end the US-Israeli war against Iran that has rattled global markets.”
Although investors had limited expectations from the summit, they hoped the talks could provide a way to find a solution to the war that has sent energy prices soaring amid difficult negotiations between Washington and Tehran.
The Chinese yuan fell to a nearly two-week low against the dollar on Monday as investors’ focus shifted from the peak to a global bond selloff triggered by inflation concerns and new signs of tensions in the Middle East.
Chinese stocks were largely flat on Monday after losing more than 1% on Friday as risk-off sentiment prevailed in global markets.
William Bratton, head of Asia-Pacific cash equity research at BNP Paribas, said the summit was unlikely to result in immediate gains for equity investors, but the long-term implications were positive in terms of mitigating geopolitical risk.
“This, in turn, will change investors’ risk perceptions and may encourage U.S. capital to re-evaluate the relative attractiveness of Chinese investment opportunities,” he said.
“All in all, we have seen U.S. investors become increasingly positive on Chinese equities since the beginning of the year, and we expect this to continue as U.S.-China bilateral relations stabilize, or rather become more predictable.”
The market’s weak reaction to Monday’s peak follows data showing China’s growth lost momentum in April; industrial production and retail sales fell sharply below expectations.
Analysts at Capital Economics said that although there was no breakthrough in the glass-half-full interpretation, the summit helped solidify the trade truce and reduced the risk of re-escalation in the short term.
“Trump’s invitation to Xi to visit the United States in September also increases the likelihood that the two sides will play nice in the coming months,” they said in a note.
‘TIGHTLY MANAGED COMPETITORS’
Investors had hoped the talks could help pave the way for a peace deal in the Middle East. However, markets are cautious about a new turmoil as China, the largest buyer of Iranian oil, has not given a clear indication that it will weigh in on the dispute.
