When even China markets start to ignore Trump

Shuli Ren, Bloomberg

Is it the lull before the storm, or has the tempest lost its destructive power?

China’s tech stock rally is remarkably resilient considering the blizzard of tariffs President Donald Trump is unleashing on Beijing. The Hang Seng Tech Index, which tracks the largest Chinese stocks listing in Hong Kong, wobbled on Friday after a surprise announcement of a 10% levy to be introduced on Tuesday. The blue-chip index regained composure Monday ahead of the annual National People’s Congress, where Beijing is expected to announce this year’s growth target and fiscal deficit.

Make no mistake: Trump has bite in addition to bark. This week’s tariff, on top of the 10% implemented in February, would take the average rate on all US imports from China to more than 30%, from just over 10% in 2024, according to Bloomberg Intelligence.

Geopolitical risk has also flared up. Trump’s recent attempts to reset relations with Russia have led to worries of a so-called “reverse Nixon” move, referring to former US President Richard Nixon’s decision in the 1970s to repair relations with Beijing in order to isolate the Soviet Union. This time, of course, the ultimate adversary is not Russia, but China, which could spell trouble far beyond tariffs.

Why are Chinese stocks so resilient, and what does this mean to the US exceptionalism thesis that the dollar and American equities will continue to outperform — which global asset managers overwhelmingly, but apprehensively, embraced entering 2025?

One possible explanation is that even if the Trump administration sees Beijing as the real foe, a chaotic implementation of priorities and policies at the White House gives China the much-needed breathing room to fortify its tech boom.

Slowing its rival down in the tech race doesn’t seem to be on Trump’s top agenda right now. The president has a lot on his plate. He needs to engineer a ceasefire in Ukraine, slim the federal workforce and halt illegal immigration. Now, Americans are growing more insistent about bringing down inflation, too.

Last week, Xiaomi Corp. unveiled a $73,000 four-door sedan, its most premium model yet, as fans of the gadget-maker put themselves on a long wait-list. Both stocks hit record highs this year.

So, is it possible that even Chinese stocks are starting to ignore Trump? If Hong Kong-listed tech shares stay firm this week, it will be a huge inflection point for a market that some have bitterly called uninvestable. It will be a boost of confidence for global investors who want to diversify from US big tech but are wary of geopolitical tensions. American investors own about $800 billion of Chinese equities, recovering from the cycle lows in late 2023, but still far shy of the $1.2 trillion at the beginning of 2021, according to Goldman Sachs Group Inc.

Everyone seems to have an opinion about what Trump ultimately wants from China, even though his true intent is still inscrutable.

Some embrace a Nixon 2.0 vision, believing that Washington will strike a big deal with Beijing that solves tensions over trade, Taiwan and the US government’s ballooning debt. Some others are more cynical, seeing a “reverse Nixon” instead that would leave Beijing out in the cold. But it’s also possible that neither narrative matters and the impact of geopolitical risks on Chinese shares starts to fade. That would be a notable driver that can lift the nation’s assets out of their value trap. [Abridged]

Courtesy Bloomberg/Shuli Ren