Mixed markets over Trump’s tariffs, but optimism is growing. Chinese equities are an opportunity

The Fed keeps rates unchanged, but positive talks between China and the United States are easing inflation fears. Chinese equities look very promising (tariffs permitting).

At its latest meeting, the Federal Reserve kept interest rates unchanged at 4.25%-4.50% and warned that the growing risks tied to inflation and unemployment, fuelled by President Trump’s unpredictable tariff policies, are clouding the economic outlook for the United States. Fed Chair Jerome Powell acknowledged the deep uncertainty, saying the Fed is, in effect, at a standstill, waiting for greater clarity on the impact of trade tensions.

Last Friday, President Trump had unsettled markets by suggesting an 80% tariff on Chinese goods, just days before the crucial trade talks in Switzerland over the weekend. In particular, by indicating that an 80% tariff on Chinese goods “seems right”, he had hinted at a possible opening after previously raising tariffs to 145%, although the proposal remained steep and could continue to weigh on trade relations. The Geneva meeting between the United States and China appears to have started on the right foot, as Donald Trump announced a “total reset” in trade relations between the two countries. In a post on the Truth platform, Trump praised the progress of the negotiations, calling them “excellent” and saying they amounted to a “total reset negotiated in a friendly but constructive way”.

It has to be said that, faced with Trump’s unpredictability on trade policy and a possible recession in the United States, more and more international investors have begun to look more closely at Asia and, in particular, at China, which is increasingly establishing itself as a pillar of stability. Yet just a year ago, China itself seemed like an economy in which investing was considered unwise, with the stock market burdened by the severe crisis in the property sector. Today, by contrast, many international banks have a buy rating on Chinese equities, raising year-end return expectations to between 10% and 15%.

There are several reasons for such a change in outlook. First of all, China now enjoys renewed credibility thanks to the economic, monetary and fiscal stimulus plans designed to support banks, the property sector and domestic consumption. President Xi Jinping has also announced his intention to support the private sector, ensuring that GDP growth prospects remain robust (+5.5%) and above government targets. In addition, China has forcefully established itself as a leading player in the tech sector, especially in key segments such as artificial intelligence, electric cars, robotics, drones and solar panels, with local companies recognised as potential competitors to the major US companies in those same industries. Finally, Chinese equities appear rather undervalued, with the MSCI China index trading on a P/E ratio of 12.5 and earnings growth of between 7% and 8%.

Naturally, this outlook is affected by the issue of tariffs imposed by Trump, but even if the Geneva talks fail, it is highly likely that Beijing will increase fiscal stimulus to support growth and step up cooperation with other parts of the world to secure alternative trade outlets free of tariffs.

On Friday, European stock markets showed clear enthusiasm for the trade agreement between the United States and the United Kingdom, especially for the British commitment to reduce non-tariff barriers, that is, the regulatory obstacles that have long limited foreign competition. In exchange for a 10% tariff on British goods, the United Kingdom government has agreed to streamline customs procedures and ease restrictions on agricultural, industrial and energy imports. While offering an advantage to US exporters, according to many economists the real winner would be the United Kingdom: fewer trade barriers could stimulate growth, investment and entrepreneurial dynamism in a struggling economy.

In the European Union, the German economy continues to be a source of concern because of the stagnation it has fallen into over the past 12 months. The new Economy Minister, Katherina Reiche, has called for a decisive shift towards rapid infrastructure investment and a greater risk appetite, in order to relaunch the economy. Speaking at the Tegernsee summit, Reiche presented a strategy centred on public-private investment in the energy, transport and digital networks sectors, stressing that 90% of the funds will have to come from private capital.