The Shanghai Composite jumped 2.68% today as President Trump talked of “big progress” in trade negotiations with China. The CSI 300 index was also up 3.22%. The rally in Chinese equities comes despite news of a punishing drop in auto sales during January: passenger car sales plunged 17.7% y/y, while total vehicle sales were down 15.8% y/y.
The economy is suffering, with multiple reports of slower consumer spending, vacant apartments and layoffs across big technology names such as Didi Chuxing. Venture capital funding has dried up.
However, the emergence of a split in the West’s response to the Huawei ‘threat’ is important, and a strong reason to be optimistic on Chinese equities. To be quite clear, Huawei is a privately held company. Nevertheless, the US is struggling to persuade its allies to back the ban on Huawei. The UK has broken ranks, along with Germany. Eastern European countries are wavering. The split highlights an uncomfortable truth for the US: China has built an unassailable lead in 5G.
Huawei’s emergence as a leader in 5G will help drive China’s boom in online services. It will yield Chinese companies a critical edge in the Internet of Things, facial-recognition technology and medical research, to name just a few examples.
• US ban on Chinese 5G crumbling
• Faster adoption of 5G in China will drive new online services
• Equities focus on tech opportunities
