
Concerns on US-China trade tensions to subside. The recent meeting between Presidents Trump and Xi in South Korea appears to have significantly de-escalated tensions, providing a much needed boost to Asian markets. Described by President Trump as a “12 out of 10”, the meeting concluded with a toned-down and constructive trade framework that exceeded market expectations. Both leaders exchanged conciliatory remarks following the meeting, with President Trump hinting at a possible visit to China as early as Apr 2026, suggesting a renewed commitment to diplomatic engagement.
Market implications: A positive shift. This constructive development on the US-China trade front is poised to alleviate a substantial overhang that has dampened investor interest in China/Hong Kong equities. Furthermore, this newly established framework could also serve as a valuable precedent for future US negotiation with other Southeast Asian nations. Meanwhile, the USD is expected to weaken progressively as the Fed delivers more cuts. These factors are expected to bolster investor sentiment and attract capital flows back into both China/Hong Kong and the broader AxJ markets.
Time for a valuation catchup. China/Hong Kong equities have taken a breather since the start of 4Q25 as investors took the opportunity to take profit following a strong YTD rally north of 40%, amid lingering US-China trade uncertainty at the time. This, coupled with the “Goldilocks” scenario driving risky asset melt-ups across Developed Markets (DM) – particularly in the US – has led to a widening of valuation discounts (currently at 35% for China/Hong Kong and 30% for AxJ). As tariff-related headwinds dissipate, we anticipate a meaningful narrowing of these discounts. We believe now is an opportune moment for investors to re-evaluate their underweight positions in China/Hong Kong and the broader AxJ markets, in order to capitalise on the projected shift in fund flows and improvement in sentiment in the coming months.
Tech, platform companies, new retail, and dividend yields in focus. We reiterate our preference for internet and tech stocks, which stand to gain from AI advancements and the ongoing technological rivalry between the US and China. At the same time, we also favour high-yielding candidates and non-bank financials that are set to benefit from the interest rate cut cycle and a potentially more vibrant stock market performance.
Figure 1: Inverse correlation between AxJ/China valuations and UST yields
Source: Bloomberg, DBS
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