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Capital Economics believes that Chinese stocks could benefit more than U.S. stocks if relations between Washington and Beijing continue to improve. However, the firm still expects the U.S. market to perform better overall in the coming year.
Thomas Mathews, head of markets for Asia Pacific at Capital Economics, said that the recent meeting between President Trump and China’s President Xi didn’t impress investors as much as expected. He noted that Chinese stocks dipped slightly after the talks.
Even so, Mathews added that optimism surrounding Trump’s visit to Asia and the business deals announced during the trip have generally helped global markets. China’s stock market, in particular, has been one of the main winners over the past week.
The firm explained that Chinese equities have reacted more sharply to trade tensions than most other markets this year. When tensions rise, Chinese stocks tend to fall more than U.S. stocks, but when relations improve, they often bounce back faster.
One key reason is that many Chinese companies listed on the stock market rely heavily on revenue from the U.S. Capital Economics estimates that Chinese firms are about three times more dependent on the U.S. market than American firms are on China.
This imbalance means that Chinese exports to other regions also matter, since the U.S. has occasionally used trade talks to pressure other countries to limit business with China.
Looking ahead, the firm said both nations still have several strategic options that could influence how their stock markets move. While short-term shifts in U.S.-China relations will continue to drive China’s market sentiment, longer-term outcomes may depend on how both sides handle future negotiations.