Earlier this week, President Joe Biden met with China’s Xi Jinping near San Francisco, California. As the two world leaders sat and conversed, the world watched closely. Relations between the two economic superpowers have been strained for some time. Now, China’s president has made the journey all the way to the United States, a nation that people within his regime have historically condemned. The clear takeaway is that China needs something from the U.S. But while Biden described the conversations as “some of the most constructive and productive discussions we’ve had,” the summit hasn’t done much for investors. Chinese stocks are still struggling, and their future looks uncertain.
Chinese Stocks Are Still Not a Buy
Tensions between the U.S. and China have cast dark shadows over both nations for months. Additionally, the threat of Chinese action against Taiwan has led to further questions for investors regarding both Taiwanese and Chinese stocks. The prospect of the recent summit led to speculation of tensions being resolved. However, that scenario doesn’t seem to be playing out. As Michael Schuman reports for The Atlantic:
“If Xi wants American cooperation and American cash, he’ll have to do much more than chitchat. Restoring trust will require real changes in policy—among them, returning to market-oriented economic reform, distancing China from Russia, and working with Washington to ease crises in Ukraine and Gaza. Because he is unwilling to make such changes, Xi will depart San Francisco largely empty-handed. He failed to get the relief he sought from U.S. exports controls and sanctions that are biting the Chinese economy.”
With that in mind, it makes sense to approach the Chinese president’s approach to U.S. relations with skepticism. His focus on a China-centric strategy for global dominance is unlikely to be compromised by a desire to provide short-term relief in a time of turbulent economic circumstances.
Wall Street clearly knows that relations between the two nations aren’t likely to see any real improvement. Granted, many Chinese stocks were struggling prior to the summit. But the event has caused bigger problems. As my InvestorPlace colleague Shrey Dua reports, the U.S.-China summit sent stocks into a tailspin when Alibaba (NYSE:BABA) opted against spinning off its cloud computing business. This caused JD.com (NASDAQ:JD), Baidu (NASDAQ:BIDU), Nio (NYSE:NIO) and XPeng (NYSE:XPEV) to fall as well.
Wide-Ranging Implications
Today, all aforementioned Chinese stocks are still in the red, with the exception of XPeng, which recently reported third-quarter earnings, displaying both revenue and sales growth. However, it isn’t just Chinese companies feeling the summit’s sting. U.S. chipmaker Applied Materials (NASDAQ:AMAT) is currently being investigated for allegedly making sales to China without proper licensing. However, these ties are also likely pushing it down as China provides a significant portion of the company’s business.
As of now, it doesn’t seem likely that China’s government will bring about the actual policy change that the U.S. wants to see. Until it does, we shouldn’t expect to see tensions resolved or to see Chinese stocks rebound. The same applies to international companies with strong ties to China.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
