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2019-01-22 China-Japan-Koreas
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David Goldman: US-China deal will boost stocks, but look for rotation to cap goods
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[AsiaTimes] All signs point to the successful negotiation of a trade agreement which will benefit Chinese stocks and global capital goods producers
We can thank the Federal Reserve for the retracement of equity indices and commodity prices during the past three weeks. Friday’s market, though, followed news reports that China has offered a multi-year buying program to eliminate the bilateral trade deficit with the US within four years.
After the Fed’s turnabout, investors piled into the same stocks they had dumped in November and December, including names we love to hate, for example, Netflix (at 114 times trailing earnings). Chinese stocks lagged, evidently due to lingering concerns about trade war.
On Friday, though, the Chinese H-share ETF’s led the rally. That’s a good sign. I expect it to continue, and I also expect the rally will rotate towards beaten-up industrials like Mitsubishi Heavy Industries, Siemens, Schneider and manufacturers of semiconductor equipment.
Presidents Trump and Xi Jinping appeared close to a deal at their December summit in Buenos Aires, but the arrest of Huawei’s chief financial officer and subsequent shots at China’s flagship high-tech company put the deal in doubt. The danger was that American efforts to sideline Huawei would undermine the trade deal. No such thing will happen, according to Chinese sources familiar with the government’s thinking.
Fourth, China did Trump a significant favor by calling Kim Jong Un to Beijing and persuading him to make progress on negotiations on the Korean peninsula. The scheduled meeting of South Korea’s president with Kim in February is evidence of such progress. This should build goodwill for trade negotiations.
Fifth, Xi Jinping will want to report progress on trade to the Party Congress in Beijing beginning March 1. The trade war has slowed Chinese growth, and it is in China’s interest (as well as Xi’s personal interest) to reach a resolution.
That reinforces our near-term optimism about equities that will benefit from a reduction of uncertainty about the global supply chain: Chinese equities, especially telecom infrastructure (eg, China Tower) and global cap goods producers. 
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Posted by 3dc 2019-01-22 00:00||
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