On Tuesday, Chinese stocks and the yuan (China’s currency) showed some improvement. This happened because investors were relieved that U.S. President Donald Trump did not announce big trade tariffs during his inauguration. However, they are still cautious about whether this means better relations between the U.S. and China.
Trump has a lot on his plate, including plans for trade, immigration, taxes, and cutting regulations. In his inauguration speech, he didn’t mention China and didn’t impose the tariffs he had promised before. This led to a rise in global stock prices and a drop in the value of the dollar.
On the other hand, Trump instructed U.S. agencies to look into trade deficits and unfair practices with other countries. He mentioned the possibility of imposing 25% tariffs on imports from Canada and Mexico starting February 1. Trump also signed a delay on enforcing a ban on TikTok but hinted that tariffs on China could still happen if a deal is not made.
At the start of the trading day, the Chinese CSI300 Index went up about 0.8% but ended flat. The yuan rose by about 0.3% against a weakening dollar. Charles Wang, who leads Shenzhen Dragon Pacific Capital Management, expressed that Trump’s presidency might be better for China than expected, noting that he seems more practical and focused on his own country’s issues.
Still, investors are advised to be cautious. Wang stated that while this isn’t a reason to expect a big market surge, it’s important to be mindful of Trump’s unpredictable nature. Yuan Yuwei from Water Wisdom Asset Management thinks Trump’s return is slightly positive and less harsh on China than the previous president, Joe Biden.
Since Trump’s election on November 5, the CSI300 index is down about 5%, but it showed signs of bouncing back recently. The yuan has weakened about 3% against the dollar since then but is now near its highest point in two weeks, thanks to a friendly call between Trump and Chinese President Xi Jinping.
Despite this small improvement, Trump’s first actions also included a review of the 2020 Phase 1 trade deal with China, which China has struggled to fulfill. Higher tariffs in the future would be bad for China’s economy, which is already facing challenges like a slow property market and weak consumer spending.
Gary Ng, an economist at Natixis, warned that just because tariffs are not happening right now doesn’t mean they won’t in the future. He said that China-related investments will still face pressure from political issues and U.S. policies.
During Trump’s first term, the yuan lost over 12% against the dollar due to a series of U.S.-China tariff disputes from March 2018 to May 2020. The CSI300 index dropped as much as 30% during that time. Ng expects to see a shift in investments as people move from companies that make things in China to those that are more focused on Chinese production.
In China, tech stocks like chipmakers, AI companies, and robotics are going up in value as investors think these sectors will benefit from China striving for self-reliance. Companies that make home appliances and cars also saw gains because of hope for increased sales from Chinese stimulus measures.
Wen Hao, a stock trader from Hangzhou, believes that the best way for China to handle potential tariffs and tech restrictions from Trump is to improve consumer spending, continue reforms, and advance technology. He prefers investing in consumer and tech stocks.
Leave a Reply