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Free AccessMNI CHINA MONEY WEEK: Sell The Rumour, Buy The Trade War?
--Value Seen In China Stocks At Near Record Valuation Discount
By Stuart Allsopp
SINGAPORE (MNI) - Based on the performance of financial markets since
President Donald Trump delivered the opening salvo in the U.S.-China trade war
back in March, the U.S. appears to have already won. U.S. stocks, U.S. interest
rates, and the greenback have outperformed China assets, as stocks, interest
rate expectations and the yuan have all plunged.
China's CSI 300 has underperformed the S&P500 by 17% since mid-March, while
1-year interest rate swaps have moved 90bps in the U.S.'s favour, and the dollar
has risen 5% against the yuan. This week alone has seen China's 1-year swaps
fall yet another 20bps hinting at an increasingly dovish policy stance by the
PBOC.
Markets appear to see the Chinese economy, with its higher degree of trade
openness and large bilateral trade surplus, as far less insulated than the US
from a potential full-scale trade war. In the short term this may be the case,
as China's GDP takes a greater hit due to a likely drop in exports.
However, over the longer term, as long as China's economy continues to
liberalise and engage in free trade with the rest of the world, as it appears to
be doing with the continued advancement of Regional Comprehensive Economic
Partnership (RCEP) talks, other markets for Chinese products, both domestic and
foreign, will open up. On the other hand, the U.S. will face the arduous task of
having to rebuild its industrial capacity and trying to compete in manufacturing
industries where it has a comparative disadvantage, while paying a higher price
for imports.
--STOCKS OVER YUAN
With this in mind, and with Chinese monetary policy looking increasingly
dovish relative to the U.S. due to the short-term impact of the trade war, China
stocks are likely to reverse their underperformance, supported by a near-record
valuation discount.
The yuan, on the other hand, continues to face medium-term downside risks
as MNI highlighted on June 8 (see 'MonPol Divergence With US To Widen Further')
owing to the ongoing divergence in monetary policy between China and the US.
--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MC$$$$,MI$$$$,MX$$$$,M$$FI$,MGQ$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.