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Amid markets’ relief rally following President Donald Trump’s trade climbdown, one country mustered a more muted reaction: China. That’s understandable, since the US leader raised tariffs on the People’s Republic even as he lowered them almost everywhere else. But with 90 days for other countries to try and strike a deal with the White House, China’s markets are a useful gauge of what might happen to them if the clock runs out.
On Thursday, while equity benchmarks in Japan and Taiwan soared 8 and 9 per cent respectively, China’s blue-chip CSI 300 added 1.3 per cent and Hong Kong’s Hang Seng, somewhat more aligned with the international mood, gained 2.1 per cent.
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That was in spite of the assembling this week of the so-called national team, where Beijing prods state-connected funds to steady a rocky market by buying shares while big companies announce big buybacks. More than 100 have promised to do so.
The so-so performance of China’s stock market also reflects the fact that listed companies have limited direct exposure to Trump’s tariffs. Goldman Sachs estimates that about 2 per cent of revenue for the MSCI China index is directly exposed to the US, and just 1 per cent for the total Chinese stock universe.
That leaves China’s markets to act as a broader reflection of the country’s perceived economic prospects as the tariffs start to bite. Even before Trump’s “liberation day”, analysts doubted Beijing’s goal of about 5 per cent GDP growth this year, forecasting something closer to 4.5 per cent. Watch the market from here to see how much more Beijing will have to do, beyond already-planned stimulus, to counter the hit from Washington. Additional spending is expected, but monetary levers are likely to be leaned on, too. Stocks will reflect whether investors believe Beijing has done, or can do, enough.
Few if any escape unscathed from a brutal trade war, hurt in some cases by friendly fire as much as enemy salvos. Consider Chinese artificial intelligence-related companies, for some of whom US parts comprise more than a fifth of the cost of goods, Nomura estimates. They are likely to be hurt more by Beijing’s countermeasures than by American tariffs.
Trading systems as complex as the one China and the US inhabit aren’t easy to evaluate, even before factoring in Washington’s current chaotic approach. Countries queueing to negotiate with Trump will watch China’s efforts and its markets’ reaction, to gauge the scale of the fight they face should “liberation day” come back about three months from now.
jennifer.hughes@ft.com
