Investors Place Bets on Stability Post-Trump-Xi Summit Amid Lingering Iran Tensions

By Ankur Banerjee and Samuel Shen

SINGAPORE, May 18 () - Emphasizing "strategic stability" during a meeting between U.S. President Donald Trump and Chinese leader Xi Jinping is expected to reduce Sino-American geopolitical tensions affecting Chinese markets, although limited advancements in trade and the Iran conflict will maintain cautious investor sentiment.

Trump's initial trip to Beijing since 2017 concluded on Friday without significant progress on trade issues or concrete support from Beijing to resolve the ongoing U.S.-Israeli conflict with Iran, which has caused instability in global markets.

Although investors had low expectations for the summit, they still hoped the discussions might offer a route to ending the conflict, which has caused energy costs to rise sharply during tense talks between Washington and Tehran.

The Chinese yuan fell to a two-week low against the dollar on Monday, as investors turned their attention from the summit to a global bond sell-off caused by concerns over inflation and new indications of tensions in the Middle East.

Chinese stocks remained mostly unchanged on Monday following a drop of over 1% on Friday, as a cautious sentiment spread across global markets.

William Bratton, the head of cash equity research for Asia-Pacific at BNP Paribas, stated that although the summit was unlikely to bring immediate benefits for stock market investors, the long-term results were favorable in terms of lowering geopolitical risks.

"This, in turn, could change how investors view risk and might prompt U.S. capital to reconsider the appeal of Chinese investment options," he stated.

Ultimately, we have observed U.S. investors gradually becoming more optimistic about Chinese stocks so far this year, and we anticipate this trend will persist as the U.S.-China relationship stabilizes or, more precisely, becomes more consistent.

The muted response to the summit on Monday followed reports indicating that China's economic growth slowed in April, as both industrial production and retail sales fell significantly below forecasts.

Capital Economics analysts noted that the positive perspective is that, despite no major advancements, the summit reinforced the trade ceasefire, lowering the immediate risk of a new conflict.

"The fact that Trump has extended an invitation to Xi for a visit to the U.S. in September also raises the likelihood that both parties will maintain a cooperative stance in the coming months," they noted in a report.

'TIGHTLY MANAGED RIVALS'

Investors had hoped the discussions might lead to a peace agreement in the Middle East. However, as China, the largest purchaser of Iranian oil, has not provided any clear signal that it will intervene in the conflict, markets are concerned about potential escalation.

The political disparities between the two nations have become evident, according to experts, due to the differing stances of Washington and Beijing regarding the conflict in Iran and the Strait of Hormuz, which typically handles approximately 20% of the world's oil and liquefied natural gas.

Trump stated that Xi had agreed that Tehran needs to reopen the vital waterway, while Xi remained silent on his talks with Trump regarding Iran. The Chinese Ministry of Foreign Affairs described it as a conflict "that should never have occurred and has no reason to persist."

Charu Chanana, the chief investment strategist at Saxo, mentioned that if there isn't a clear resolution regarding trade, Taiwan, or the situation in Iran, the meeting could be regarded as insignificant: beneficial for investor sentiment, but not sufficient to alter the overall market conditions.

That's where the risk remains," Chanana stated. "Investors might be undervaluing the possibility that the Iran conflict continues to keep oil prices high, inflation expectations persistent, and bond yields remain elevated for an extended period.

Additionally, Taiwan will continue to play a key role in U.S.-China relations, according to experts, following Xi's statement to Trump that improper handling of the island could result in confrontation between the two nations.

Sam Jochim, an economist with the Swiss private bank EFG International, mentioned that whether Trump approves a $14 billion weapons deal with Taiwan will hold significance.

He stated that such an action could risk damaging his relationship with Xi.

Trump himself created some uncertainty after stating on Friday that he had not yet decided whether to move forward with a significant arms sale to Taiwan.

A temporary trade agreement between the U.S. and China, following a series of escalating tensions, is set to end later this year, and the uncertainty regarding tariffs during the meeting has affected investor confidence.

Even the agreement, which was promoted as the main outcome of the discussions, left investors unimpressed - Boeing's stock declined following Trump's statement on Thursday that China would purchase 200 of the company's aircraft, a figure significantly lower than what analysts had anticipated.

Although there was little advancement regarding trade issues, Ting Lu, the chief China economist at Nomura, described the two-day summit as an effort in "economic and political risk management," pointing out that it provided temporary stability for both leaders.

"Throughout the rest of 2026, the G2 powers have chosen that if they must compete, they will do so in a manner that is predictable, transactional, and closely controlled," Lu stated, referencing a term Trump utilized for the pair in October.

(Contributed by Ankur Banerjee and Rae Wee from Singapore, Summer Zhen and Jiaxing Li from Hong Kong, Samuel Shen and Winnie Zhou from Shanghai; Edited by Sumeet Chatterjee and Thomas Derpinghaus)

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