Beyond China: What investors should be watching

All eyes are on U.S./China relations this week, as new talks give hope for signs of de-escalation in the two countries’ trade war. While hopes for a comprehensive agreement remain low, even marginal progress could provide temporary relief to jittery markets. But China isn’t the U.S. markets’ only concern, just its largest and most obvious one—and that has potential implications for portfolio weightings. 

Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are expected to meet in Switzerland this week for the first high-level talks since tariffs were ratcheted up to as much as 145% on some goods. Markets have already broadly rallied on the speculation of lower tensions, but this isn’t just a bilateral story—which means the jitters are likely here to stay. 

European leaders, increasingly frustrated by the collateral damage from U.S. trade policies, are beginning to mount pressure of their own. Calls for a more unified EU stance on tariffs and digital taxation signal that transatlantic friction may grow in parallel with the U.S./China standoff. 

While equities remain rangebound in volatile but not panicky markets, capital flows tell a more interesting story. Investors are repositioning quickly, particularly in response to reports that Chinese ADRs could face delisting pressures. That risk is accelerating capital outflows from Chinese equities, especially from U.S. listed vehicles, and driving interest toward local listings and alternative emerging market proxies. This has prompted China to enlist their ‘National Team,’ a set of quasi-government institutions, to help prop up markets. 

Currencies are also signaling change. The U.S. dollar’s recent weakness—partly due to shifting Fed expectations and global risk sentiment—has buoyed European and Asian currencies. The Taiwan dollar (TWD), for instance, surged 4% in a single day, the kind of move that reverberates through trade balances and central bank policy rooms. A sustained dollar decline could provide some inflationary pressure abroad, but also risks complicating export dynamics for U.S. manufacturers. 

Meanwhile, the divergence between soft and hard data remains jarring. PMI surveys and forward-looking sentiment gauges are flashing red, but labor markets, consumption data, and corporate earnings remain firm. That disconnect keeps policymakers cautious and investors nervous. 

Given the distribution of risks, we find it prudent to begin discussions around diversifying risk away from the still heavily owned U.S. markets. European markets in particular are starting to look interesting given more discounted valuations and seemingly asymmetrical upside/downside capture on a day-to-day basis. 

Arjun Kaushik contributed to this article.