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Investing.com -- Capital Economics believes China’s equities “stand to benefit more than those in the U.S. from any further easing in U.S.-China tensions,” though it still expects the U.S. market to outperform over the next year.
“The outcomes from the much-hyped Xi-Trump meeting earlier this week seemed to be a mild disappointment to investors,” said Thomas Mathews, Capital Economics’ head of markets in Asia Pacific, noting that “Chinese equities, in particular, sagged a bit.”
However, the analyst wrote that “enthusiasm around Trump’s trip to Asia, and the resultant ‘deals’, has still been a decent tailwind for equity markets over the past week or so, on net,” with China’s stocks “one of the key beneficiaries.”
Capital Economics added that “China’s stocks have seemingly been more sensitive to trade tensions than most this year,” underperforming U.S. equities when tensions rise and outperforming “when the mood has improved.”
The firm attributed this partly to the high degree of dependence of Chinese listed companies on the U.S. for revenue.
“We estimate that they are about three times as exposed to the U.S., on this basis, than U.S. companies are to China,” Mathews stated.
That imbalance, Capital Economics noted, means “the size of exports to the rest of the bloc is important because the U.S. has, at times, tried to use trade negotiations to encourage other countries to limit trade with China as well.”
While China’s near-term equity performance remains closely tied to shifts in sentiment around U.S. relations, Capital Economics said both sides “have various other cards to play in future negotiations that could have a bearing on their equity markets.”