Market Insights

November 7, 2019: Did the tide just turn in U.S. relations with China? Consider the flood of positive news today.

First and foremost, Beijing and Washington agreed to simultaneously cancel tariffs on each other. The news directly rebuffed nagging press reports this week that such a deal would be delayed.

Shortly thereafter, Xinhua News Agency suggested Chinese officials may end restrictions on U.S. poultry imports. Given the fact Xinhua is run by the state, it’s hard to imagine the two events weren’t connected. Not huge economically, but it has symbolic value.

Third, the yuan rose to a four-month high against the U.S. dollar. The Chinese currency has now appreciated for eight straight sessions after hitting an 11-year low in early September. This is an example of the Asian country bending to one of President Trump’s oldest demands.

Fourth, China agreed to prosecute nine fentanyl smugglers — the first time it’s worked with the U.S. on an opioid case. While it’s not economic, it’s another sign of collaboration between the two governments.

Chinese Stocks

Fifth, the People’s Bank of China reported that foreign holdings of the country’s equities ended the third quarter at a record $253 billion. Even more interesting, that total rose 40 percent year-over-year — despite Trump’s tariff war.

How did that happen? Back in May MSCI (MSCI) doubled its recommended exposure to Chinese stocks and said even more increases would follow. MSCI, by the way, manages a range of stock indexes, influencing how countless dollars are allocated globally.

And that brings us back to the stock market. Dozens of Chinese companies, especially technology stocks, trade in the U.S. The iShares China Large-Cap ETF (FXI) ETF, which tracks the country’s broader market, is highly active as well.

Chips and Banks

Investors have also viewed semiconductor makers as a key way to benefit from trade fears lifting. Economically sensitive stocks like industrials and materials are in a similar boat.

Just the opposite may be said about safe havens like bonds and gold. Both have struggled after big summer rallies and remain under pressure today.

That, in turn, has been a positive for U.S. banks and financials. While they don’t have much direct exposure to China, they do stand to benefit from bonds losing value because of the yield curve.

In conclusion, China just surprised the world with an early rollout of 5G networks. Now, less than a week later, there seems to be more positive news as Beijing moves toward smoother relations with the Trump Administration.