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China Perspectives - We stay constructive despite fresh US-China trade spat
Oct 13, 2025
- US President Donald Trump announced on Friday that he would impose an additional 100 per cent tariff on China in response to Beijing’s latest comprehensive rare earth export controls. While there is a bit of surprise element, especially days ahead a planned bilateral leadership meeting during APEC, we don’t think investors are entirely caught off guard given the history of back-and-forth during the 4 rounds of US-China trade talks since Liberation Day
- It's perceivable that the rally in China equity since April and such newly emerged uncertainty could lead to some profit taking in the short-term. However, the volatilities may well be two-way, as investors look for signs whether the leadership summit would still go ahead and if de-escalation can happen before the November 1 deadline, which we believe is quite possible still. Overall, we think the surprise effect is now much less than around Liberation Day – the market impact should therefore also be less pronounced, for China as well as global risk assets
- Our Mild Overweight on China equities is unchanged. We believe more policy support in Q4 and earnings acceleration in 2026 would continue to drive the China equity re-rating story. Recent softening in economic data suggests diminishing margin effectiveness of earlier measures and should prompt the central government to increase stimulus measures, monetary, fiscal and consumer-focused ones, while the upcoming Fourth Plenary Session should give more guidance on concrete economic reform plans. Liquidity flow and earnings are supportive too, lifted by development in AI deployment and application
- Our China equity strategy manages the tariff risk by our continued barbell approach, favouring the domestically focused technology leaders and quality companies that improve ROE by paying high dividends and share buybacks