A Stock Trader’s Guide for Visit of US Senate Group to China

Traders are betting a visit by US senators to China next week may help prevent any further deterioration in bilateral relations, and boost sentiment toward the Asian nation’s assets.

(Bloomberg) — Traders are betting a visit by US senators to China next week may help prevent any further deterioration in bilateral relations, and boost sentiment toward the Asian nation’s assets.

The trip led by senate Majority Leader Chuck Schumer and Republican Senator Mike Crapo may lead to broader two-way talks and pave the way for a later meeting between Presidents Joe Biden and Xi Jinping, market watchers say. 

“The meetings will be to re-establish two-way communications between the G-2, instead of discussing specific details,” said Hao Hong, chief economist at Grow Investment Group, referring to the Group-of-Two or US-China relations. “But even the hopes of the G-2 talking together again are enough to get the market excited.”

Months of rising frictions between the two superpowers have sapped overseas sentiment toward Chinese assets. Global funds were net sellers of the nation’s shares in September, reducing their exposure to the lowest level since 2020. China’s benchmark CSI 300 Index has fallen almost 5% since the end of December to head for a third year of losses. 

Any progress on issues such as the treatment of US technology firms in China, national security or green energy may deliver a positive surprise for the market, analysts said. 

“I will be most keen to see whether it paves the way for an eventual Biden-Xi meeting as that could signal at least a halt to further intensifying of the US-China conflict,” said Xin-Yao Ng, an investment manager for Asian equities at abrdn in Singapore. “I wouldn’t hold my hopes up for a major breakthrough in strategic directions, like US restrictions on China access to advanced semi tech, as I doubt that stance will change.”

Here are some key areas to watch:

Technology

The US delegation intends to raise the issue of Micron Technology Inc.’s ability to do business in China during their trip, according to people familiar with the preparations who asked not to be named. The company faces a probe by the Chinese government’s cybersecurity administration.

Micron, headquartered in Boise, Idaho, is currently building a chip-fabrication plant in upstate New York, making its business issues home-state concerns for both Crapo and Schumer, who represent those states. Micron has said the probe has put half of its China sales at risk.

Any improvement in the treatment of Micron may give a positive boost to supply-chain companies including Jiangsu Yoke Technology Co. and Hangzhou Chang Chuan Technology Co.

China’s largest internet companies such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. may also get a boost as a proxy for China sentiment on any signs of improving US-China relations. 

Climate Initiatives 

Cooperation on climate change is another area where the two sides may potentially engage, market watchers say.

A pledge for carbon neutral goals would boost clean energy stocks such as Xinyi Solar Holdings Ltd., Sungrow Power Supply Co., Jinko Solar Co. and Tongwei Co. Conversely, coal producers like Yunnan Coal & Energy Co., China Coal Energy Co. and Inner Mongolia Yitai Coal Co. may see their shares come under pressure.

–With assistance from Winnie Hsu.

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