China Stimulus

The Trump-Xi summit continued the trade truce and tentatively created a framework to contain tensions over 2026. That is not a trade deal but it is good enough for global financial markets, especially Chinese assets.

Rising Russia-NATO risks, tactical oil/gold trades, tougher sanctions on Russia (maybe China), China stimulus with ~5% growth target, and US checks on Trump’s ambitions will define Q4. 

Our newly constructed China Economic Pressure Indicator shows intensifying household stress, raising the likelihood of new policy support in the coming months. We recommend a tactical trade as a stimulus hedge.

Acute geopolitical risks, like a massive oil shock, may be abating. But structural geopolitical risk remains high and could upset a blithe market. Cyclical economic risks are underrated as the US slows down and China continues to stumble. Investors should book some profits in anticipation of tariff implementation and a downturn in hard economic data.

This report analyzes China’s persistent deflation, which is rooted in supply-side forces. Consumption support will be slow and incremental, keeping deflationary pressures elevated for the next 6–12 months.

This week our three screeners explore equity trades in Robotics, European Quality and Technical, and Hong Kong. 

Chinese tourism will continue growing, but investors should be mindful not to overpay for Chinese tourism stocks by extrapolating their past double-digit revenue growth into the future.

Do not play the bounce in US and global cyclical assets as Trump backpedals from the trade war. China will talk, but the pace will be slow and the outcome disappointing. Fiscal stimulus will surprise marginally in the EU, China, and even the US, but still may not rescue the business cycle. 

This week, we look at the sustainability of the HKD peg as the next whale to move markets, given what is happening to tariffs. After careful analysis, our bias is that it is here to stay. With the DXY dipping below 100, we are likely to see a rebound, which is actually bad news for the Hong Kong region of China, since it will tighten financial conditions. We have no new short-term trades, but if the peg broke, you want to be short HKD/JPY.

China’s aggressive retaliation against U.S. tariffs will enable President Trump to shift from punishing allies and redirect the trade war toward China. If Beijing does not react to the latest tariffs by doubling its fiscal stimulus, it indicates they are planning something different, as China will encounter economic destabilization. The likelihood of a hybrid military pressure on Taiwan will rise.