President Joe Biden will speak with his Chinese counterpart Xi Jinping in Bali, Indonesia on Monday, and the question for markets will be – does their meeting cement the current geopolitical tensions and US-China drift?
The MSCI China Index is up nearly 4% on Friday. The markets seem pretty happy about things, even if it really means that the status quo remains largely, slightly upward.
Friday’s Stock Market Gains in China (Better Than America) Hedge fund money manager and CNBC pundit Kyle Bass warned on his Twitter feed that companies and investors should be prepared to leave China. He said Xi was on a war footing and the US would not tolerate it.
Monday’s talks on the sidelines of the G20 will tell us what the White House will tolerate and what will not.
Since Biden took office, he has put Trump’s Section 301 tariffs on Chinese imports worth more than $300 billion, and extended Trump’s capital market restrictions on publicly traded Chinese defense contractors. This pushed investors out of Shanghai or Hong Kong listed companies that make weapons and spy equipment for the Chinese government. Recently, Biden’s Commerce Department added new products and new companies to the so-called entity list — a list of Chinese tech firms that face increased sanctions when buying American-made computer hardware.
Whether this hinders China’s growing semiconductor industry is unknown, but it won’t stop Chinese consumer electronics from dominating American brands in their backyards. Anyway, Huawei and Xiaomi rival Apple
The main concern for markets over the Bali talks on Monday will be whether Biden will push Xi onto Taiwan, making the CCP boss more apt to remain on the war footing outlined earlier this week. And the White House may or may not count on Xi to talk to Vladimir Putin about ending the Russia-Ukraine war.
Both Volodymyr Zelensky and Putin have a common ally in Xi, not the same ally in Washington and Brussels. Xi said he would help end the war in Ukraine, and Biden would be moderately brisk, not saber on the South China Sea.
Biden’s gesture to remove the Section 301 tariffs would also be seen as too bullish for China. And Xi says he’s done all with zero Covid, a double-plus win for China’s A-shares.
“There has to be a way to frame the relationship, look, we’re going to be a competitor in this or that market, like microchips, but we’re not going to be a military competitor,” says Vladimir Signorelli, head of macro investment research. Firm Bretton Woods Research based out of Long Valley, NJ. “I don’t think it serves American interests to put China in a box and hand them over to Russia. Since the days of Nixon, Washington hasn’t wanted Russia and China to align, and Russia and China are aligning ,” he says.
On the tariff front. “I can see Biden saying that tariffs will reduce inflation, but I wouldn’t bet at home to remove them,” Signorelli says.
Over the past few weeks, we have heard of talks about the expansion of the BRICS alliance – a tight conglomerate of the largest emerging markets in their respective regions formed in the mid-2000s. At the heart of this alliance is an agreement to help each other through their central banks if one is in financial trouble. It was always a way for BRICS to turn to the Western-led International Monetary Fund.
Given the recent problems in Russia, one possible reason for those central sanctions not coming to Moscow’s aid was because of sanctions. If they gave the dollar’s lifeline to Russia’s central bank, it could open the door to the risk of sanctions; Some central banks defer.
Instead, China and India became major buyers of Russian goods, making up for the shortfall suffered by Europe after the “sanctions” on Russian oil and gas. (Europe still imports Russian oil and gas, usually through third-party routes.)
Any unity of the enlarged BRICS consortium could mean less demand for the US dollar, arguably the number one export commodity of the US. This will be a major hurdle for the US, as lower demand for Treasury bonds from the world’s largest emerging market banks will drive higher interest rates at home. And higher interest rates will make US multi-trillion dollar debt more expensive to manage.
The Saudis have already said they can sell oil to China in yuan, but it is not clear whether any transactions have been done in yuan.
German Chancellor Olaf Scholz was in Beijing just last week, largely on an olive branch in the Washington-led EU-China Cold War.
China Stocks: Should You Be a Buyer?
Is it time to be a little bit quicker on China?
“It could be, I’m not sure,” Signorelli says. “But if Covid Zero is dead, then China is in the game.”
Shares in Hong Kong and Mainland China performed well on Friday as the State Council decided to ease restrictive COVID policies on Thursday. Instead of obeying Beijing’s orders, Hong Kong’s local authorities will now be given more control over policies.
“Beijing has demonstrated that it is aware of everyone’s frustration by phasing out large-scale COVID testing,” says Brendan Ahern, CIO of CranShares, a large Chinese ETF firm in New York City. “They are ending the quarantine in a government facility for those exposed and for those leaving areas where an outbreak occurs. The government will also stop trying to identify close contacts,” he says. Ahern also posts content on Forbes as a senior contributor.
For those who have not yet bailed out in this market, this is welcome news. Investors don’t need tariffs to come out of China. Their domestic economy is quite large. It’ll be like European fund managers aren’t investing in the US because of Boeing
China’s largest ETF has lost more than 40% in the past 12 months, driving emerging market funds to the bottom.
For example, investors who have just selected their locations and selected Mexico
Zero Kovid did China no favors.
The housing market didn’t do China any favors.
Geopolitical risks did China no favors.
But Monday’s Bali meeting could be a sentiment shift, even as long-term geopolitical risks remain.
Auditors from the US Public Company Accounting Oversight Board (PCAOB) left Hong Kong this week, which investors have so far taken as a positive sign that Chinese publicly traded companies are finally getting their books audited by third parties. will allow. We’ll see how it goes. The CCP is against it, especially for state-owned entities such as PetroChina. It may be a common Chinese trick—shake it now, make promises, and never deliver. PCAOB has been asking China to do the same for years, but to no avail. The Securities and Exchange Commission is now threatening to delist Chinese companies that do not allow third-party audits.
Finally, in a sign China is still alive, e-commerce giant JD.com said consumers are looking back on their 2022 Singles Day, which happened in China. It is Chinese Black Friday.
According to the company, the sales figures showed “increasing consumer confidence”. However, JD did not claim any record-breaking sales, suggesting that China is still not its own.
The Bali meeting would normally be a joke of politicians. Tariffs will be the key. The expulsion is swift for China, but a sign of weakness on China for Biden. With the midterms ending, it doesn’t matter for the White House. Xi’s Biden is unlikely to talk about Covid restrictions, although if supply chain issues emerge, he just might. Any indication that Xi is ready to give up on Covid is bullish. After that, the main risk to China’s business comes from Washington. But if Biden lifts tariffs under the guise of lowering inflation, the wind will be behind China.
Credit: www.forbes.com /