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Investing.com -- The upcoming meeting between U.S. President Donald Trump and Chinese President Xi Jinping could trigger a rally in Chinese equities if it results in concrete trade concessions, including a rollback of tariffs on fentanyl and easing of technology export restrictions, according to analysts at Morgan Stanley.
The two leaders are set to meet on Oct. 30 in South Korea after negotiations in Malaysia produced a preliminary agreement on fentanyl control, maritime shipping, agricultural trade, and export curbs.
"We believe this indicates that the possibility of some concession/compromise by the US is very high – otherwise, such specifics would not have been mentioned," analyst at Morgan Stanley said.
Morgan Stanley said the level of detail in the Chinese statement suggests a high probability of U.S. compromises.
Trump told business leaders at the APEC summit in Seoul that he expects “a good deal for both” countries, and the brokerage said investor sentiment remains cautious, with many not expecting a fentanyl tariff cut despite anticipating the reversal of the 100% surcharge.
MSCI China has lagged the S&P 500 by about five percentage points since October 10.
Morgan Stanley said a combination of reduced docking fees, a fentanyl tariff rollback, and a relaxation of chip export rules could lift the index by a mid-single-digit percentage, saying that markets have yet to price in such a scenario.
Morgan Stanley analysts said progress on trade, combined with any signal of improved U.S.–China cooperation on technology, could narrow the recent underperformance in Chinese stocks.