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Investors react to Xi-Trump meeting

Investors react to Xi-Trump meeting

The financial sector opening up would be even more meaningful if it was in the banking and insurance space -- which it is not.

The comment was made by Ashish Goyal, head of emerging market equities at NN Investment Partners in relation to the Bilateral Investment Treaty between China and the US, on whether China can increase the ceiling of foreign investors’ stake holdings in Chinese securities and insurance companies.

The treaty was not concluded during the in-person meeting between Chinese President Xi Jinping and US President Donald Trump, which ended on Monday.

'Current talks are for opening up the broking / investment banking sector which is far less important,' Goyal told Citywire Asia

'The insurance sector has huge barriers with city by city licensing. This has been what Trump has talked about even 10-15 years ago.

'There will be more investments in China on the back of the proposed changes as global companies raise their stakes to above 50% in the current joint ventures.

'But China still remains a closed market for foreign capital – except in areas China wants capital to come in.'

Regarding China's willingness to make concessions to give the US better market access in two areas — financial sector investments and beef exports, mentioned by several media reports - Goyal said it's too early to comment as details are sketchy.

'Base case is that China will open its markets slowly – it would have done that anyway for a number of reasons. However it will now make a big show of making these “concessions” so as to get Trump off their backs.

'Beef imports from the US – China can easily increase those to reduce the trade imbalance. China will likely look to buy from the US other things as well, for instance LNG/oil, which will optically reduce the imbalance – but those are global commodities and will not fundamentally change the underlying imbalance.'

BNP Paribas IP view

According to Daniel Morris, senior investment strategist at BNP Paribas Investment Partners, it appears that relations could be rather more constructive between both sides. He's probably right -- given that Trump withdrew from a key campaign stance overnight, declaring that China is not a currency manipulator.

'It is reasonable to hope now that negotiations could open up further sectors to US, which should help reduce the US trade deficit with China that Trump is so concerned about. As for the impact on US investor sentiment, it is clearly positive,' said Morris.

'While US investors have for a long time seen the opportunities in China, recently they might have become concerned about a deterioration in the relationship hurting prospective returns. Those concerns should now be somewhat alleviated.'

According to Morris, the actual sectors are certainly helpful in terms of increasing US market access to China, but it is probably most important signal this gave to investors about the trading relationship between the two countries.

'Given the rhetoric during the campaign and subsequent to the election, not only from Trump but from several of his appointees, investors were justifiably concerned that a trade war could break out between the two countries, something that would be harmful globally.'

In relation to the Bilateral Investment Treaty, Morris said the treaty is significant for both countries given the opportunities for investment capital to spur growth.

'To the degree that either country increases the limits on foreign investment, both sides should benefit,' he said. 

'US investors and companies are generally eager to explore opportunities in China, and one hopes that the treaty will make that easier.

'One would anticipate the expansion of access and raising of investment ceilings will lead to greater US investment, which has the beneficial side effect of promoting cooperation at a government level.'

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