By Brendan Ahern via Iris.xyz
On a recent visit to China, I met with a wide variety of financial institutions to discuss their views on the current economic relationship between the United States and China. Interestingly, their sentiment toward the U.S. was still extremely positive. Many compared our countries to a married couple currently having a disagreement. No one doubted the fundamental value of the relationship, but they were uneasy about the abrupt change in U.S. negotiation tactics.
President Trump’s “Art of the Deal” prescribes an extreme starting position that is eventually worked out through a levelheaded compromise. The near term market volatility we have seen recently stems from domestic Chinese investors who take their leader’s words as definitive policy and apply the same logic to the U.S. president. For long-term international investors this means Chinese stocks with strong fundamentals are currently trading at a huge discount to the S&P 500, providing what may be an excellent entry point to the Chinese market.
While trade tensions have created uncertainty, we believe China’s economy is more resilient than what the headlines portray. Three macro trends suggest that tariffs could have a relatively muted long-term impact on economic fundamentals in China: