Positive Tariff Talk Lifts Markets

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Asian equities had a strong day following Treasury Secretary Bessent’s comments on getting a deal done with China and President Trump’s comments on not firing Fed Chair Powell and his willingness to do a deal with the Chinese government.

There is likely a significant delegation from China attending the International Monetary Fund (IMF) and World Bank meetings in Washington, DC, this week, though the attendees have not been announced.

Trump’s positive comments on tariffs and doing a deal followed his meetings yesterday with the CEOs of retail giants Walmart, Home Depot, and Target. The tariff tsunami is on the horizon, but has yet to come ashore!

Reuters reported that shipping company Hapag-Lloyd has experienced a -30% decline in its China-to-US shipments cancelled. Imagine a third less stuff at those stores! A Mainland media source noted that the rare earth export ban has impacted the production of Tesla’s robots and batteries. It shouldn’t be hard to see the relationship between markets and tariff talk. Less tariff talk equals markets up, while more tariff talk equals markets down, it would seem. Markets are forward-looking, though the real economic consequences on the US consumer and economy have yet to be felt, and it is not going to be pretty.

Following Trump’s comments, China’s Ministry of Foreign Affairs expressed a willingness to negotiate but reiterated a tough stance. There was chatter that a sell-side firm believes a tariff rollback could lead to a significant revaluation rally, though I’ve not seen the piece.

Hong Kong had a strong day on positive volumes as advancers outpaced decliners, led by growth stocks. Hong Kong’s most heavily traded stocks by value were Xiaomi, up +6.87%, Alibaba, up +5.45%, Tencent, up +3.00%, Meituan, up +2.84%, and BYD, up +3.89%. There were reports that China would stop the policy of allowing refunds prior to returning the goods due to complaints from merchants, which boosted internet company stocks. It seems logical!

China Mobile’s stock fell by -2.23% following low growth financial results, which weighed on telecommunication stocks. Also, gold prices sank, which weighed on gold and precious metals stocks.

The massive flows into the Hong Kong Tracker ETF and Hang Seng China Enterprise ETFs yesterday were reversed today, as Mainland investors sold a net $2.3 billion worth of Hong Kong-listed ETFs and stocks today. Southbound Connect accounted for 49% of today’s Hong Kong turnover, indicating Mainland investors’ reaction to the Trump comments was far less subdued and highlighting the real issue in China, which is real estate.

Like in Hong Kong, technology hardware and electronics stocks had a strong day, along with electric vehicle stocks, as CATL gained +1.15% and BYD gained +4.83%. The gains in electric vehicle stocks may be related to the Shanghai auto show kicking off. Otherwise, Mainland investors appear to be waiting for further stimulus policies, which could come at the end of the month’s Politburo meeting. However, we might get a hint of what’s coming from the Standing Committee of the National People’s Congress, which runs from April 27th to 30th.

Are investors positioned for a positive outcome of the US-China trade negotiations? Definitely not! Despite the Hang Seng closing up +10% year-to-date (YTD) as of today’s close, and the S&P 500 Index closing down -10% YTD as of yesterday’s close, US-listed China equity ETFs have seen -$3 billion of outflows (to be fair, the vast majority of the outflow is concentrated in one ETF). Despite the European Manufacturing purchasing managers’ indexes (PMIs), released this morning, showing contractions, US-listed European equity ETFs have seen $3.5 billion of inflows. Yes, European Union and Germany ETFs have had decent performance YTD. However, much of the positive performance can be attributed to the Euro’s appreciation versus the US dollar. All I’m saying is that the pain trade in China is higher, not lower. The only people out there who have noticed the resilience of the Chinese equity market have been technical analysts. If the geopolitical headwind fades, game on.

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