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Why Chinese Stocks Just Got a Boost from Trump

Donald Trump’s presidency is supposed to be bad for Chinese stocks. But in his first week on the job, he just did them a big favor.

Chinese stocks have been on the downslope in advance of Donald Trump’s inauguration. But in his first week on the job, the new U.S. President just did them a big favor. Let me explain.

On Monday, President Trump signed an executive order withdrawing the U.S. from the Trans-Pacific Partnership (TPP), a trade agreement proposed by the Obama administration to solidify American leadership among 14 Pacific-rim nations. The Partnership was intended to lower trade barriers and promote economic development while protecting workers and the environment. The members—Japan, Australia, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam—accounted for 40% of global trade, and the agreement was viewed as a way to counterbalance the influence of China in the Pacific region.

So what does the withdrawal of the U.S. from the TPP mean? Essentially it means that the agreement is dead.

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That’s good news for its opponents, who said that passing it would send more American jobs overseas. TPP became a political football during the Presidential campaign, with many who had previously supported it switching sides after it became clear just how unpopular it was among some voters.

The withdrawal is also good news for China, as it leaves economic leadership in the region to that country. China has been promoting a regional trade agreement of its own, the Regional Comprehensive Economic Partnership (RCEP), and with TPP out of the running, the RCEP will no doubt gain momentum. This will increase China’s influence in the region, making it the de facto leader of the Asian economic sphere.

What are the consequences?

It’s worth noting that Chinese stocks that trade on U.S. exchanges got a lift from the news of TPP’s demise. The PowerShares Golden Dragon China ETF (PGJ), which had been trading sideways for nine consecutive trading sessions, popped higher on Tuesday, the day after the news came out.

Many of the Chinese stocks in the portfolio of Cabot Global Stocks Explorer shared PGJ’s strength.

But not all Chinese stocks will benefit.

China is in the middle of a difficult transition, as Xi Jinping and the Party he leads attempt to move the Chinese economy away from a manufacturing and export basis to a consumption and service basis. Xi has been focused on the problem of corruption for several years, attempting to restore trust in the Party’s leadership.

And there are other problems, including the monumental task of dismantling giant, state-owned industries that consume capital and contribute little to growth. These industries employ vast numbers of workers, and shutting them down would create unacceptable levels of unemployment, which is one thing the Party can’t tolerate.

Investment analysts consider the dissolution of the Trans-Pacific Partnership a win for China, and Chinese stocks that trade on U.S. are rebounding from their late-December lows.

It’s a good time for any investors who are interested in the excellent potential in Chinese stocks to begin their due diligence. Or, you could just take a subscription to Cabot Global Stocks Explorer and let its diligent Chief Analyst, Paul Goodwin, do the heavy lifting for you! To do so, click here.


Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.