September 2021 brought considerable turbulence for stock indices across both the U.S. and China, as a crisis at real estate development giant Evergrande (OTCMKTS:EGRNF) dragged down Chinese markets and the effects were felt globally. Recent news indicates that October may be off to a better start, though, as the shares of prominent Chinese companies that trade on U.S. exchanges began to rise today. There were multiple factors at play as to why, but one key reason is likely the highly anticipated talks between Presidents Joe Biden and Xi Jinping, an event that has the potential to benefit Chinese stocks.
The meeting is slated to take place before the end of the year, although an exact date has yet to be announced.
Chinese Stocks Rising in U.S.
For China-based companies whose shares are traded on major American indices, this has been a very green day. EV producers Nio (NYSE:NIO), Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) closed up 6.9%, 7% and 5%. It should be noted that Nio’s shares are likely rising for an additional reason today, as a Goldman Sachs analyst issued an impressive $56 target on it and changed his position from “hold” to “buy.”
Meanwhile, mobile technology platform peer DiDi (NYSE:DIDI) closed up 3.3% while e-commerce giant Alibaba (NYSE:BABA) closed up by 8.2%. Competitor JD.com (NASDAQ:JD) closed up by 6.2%. For Chinese tech stocks, this trend is the third day of gains. Other winners for the day include tech giant Tencent Holdings (OTCMKTS:TCEHY) which is up by 7.8%.
Lower oil prices are also likely a contributing factor to the ease in market tension that we have seen today, allowing Chinese stocks to rise.
What’s Going On
It’s no secret that relations between the U.S. and China, formerly its largest trading partner, have been significantly strained in recent years.
Though Biden has indicated that he recognizes the importance of smoothing over trade relations with China, he has only recently taken aggressive steps toward doing so. This week began with U.S. Trade Representative Katherine Tai giving a speech on exactly that subject, which, according to POLITICO, “Clearly signaled to Chinese President Xi Jinping that the Biden administration wants to end the holding pattern in bilateral trade relations in favor of constructive engagement on issues that have festered over the past year.”
Carlos Casanova, senior Asia economist at Chinese asset management firm UBP commented on this today, telling Reuters that “The improved mood in U.S.-China relations, especially the more constructive tone in the speech by trade chief Katherine Tai this week, had boosted risk sentiment.”
While it is still early in the process of diplomatic negotiations, it is clear that most parties involved want to put an end to the strain on U.S.-China trade relations so that both economies can move forward. As we saw during the heyday of the Evergrande contagion, the two are intertwined and if one experiences turbulence, the other does as well. With the impending energy crisis looming overhead and the supply chain crisis already causing problems for manufacturers across the globe, there has never been a more appropriate time for the world’s two largest economies to regain diplomatic trade relations.
Why It Matters
If anyone still needs further convincing as to why U.S.-China relations need to move forward in a diplomatic manner, stock markets provide an excellent example. When the day began with news breaking of the impending meeting, Chinese stocks that trade on U.S. exchanges enjoyed a great day across multiple sectors.
It’s worth noting that this was only the result of speculation and anticipation. Today should serve as an indicator of what could happen if actual trade talks result in the restoration of diplomatic trade relations.
We should all be watching these Chinese stocks as the two leaders further their plans to meet and discuss trade.
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.
