US-China phase one trade deal could boost A shares as earnings growth comes through, analysts say

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A phase one trade deal between the United States and China could be another positive for the latter's A-share market this year, as earnings growth is expected to be strong in sectors ranging from the software industry to the financial sector, according to investment strategists and economists.

The truce in an 18-month fight between the world's two biggest economies should ease some of the pressure on Beijing and allow China to move forward with a number of reforms, including addressing the stability of its financial system, Norman Villamin, chief investment officer for wealth management at Swiss private bank Union Bancaire Privee, said.

"We think the [phase one trade deal] is going to be very good for the A-share market in general, and that's a place where we're really focusing investors, in terms of allocating their money, in 2020," Villamin said.

UBP is bullish on the biotechnology sector, which could benefit from the trade deal, he said.

US President Donald Trump and Chinese Vice-Premier Liu He signed the phase one deal at a ceremony in Washington on Wednesday.

Trump has aggressively used tariffs to force Beijing to change decades of industrial and trade policies, adding duties to about US$360 billion of Chinese-made goods. China has responded with its own tariffs on about US$110 billion of American goods, creating an environment of uncertainty that has caused companies to delay investment and attempt to shift portions of their supply chain out of mainland China. It has also weighed on global trade.

The phase one agreement included commitments by China to buy over a two-year period at least US$200 billion of American goods and services more than it did in 2017, including agricultural products and manufactured goods.

China has also agreed to lift barriers on a number of US exports, including beef, poultry and infant formula. Beijing also has pledged greater financial market access and intellectual property protection.

The US state caught between China and the White House

"A phase one deal, I would say for Asian exports, it reduces a drag," Frederic Neumann, co-head of Asian economics research at HSBC, said. "It doesn't necessarily cure all the challenges that we see in the export space. We see a gradual recovery of trade this year."

Analysts have, however, expressed scepticism over whether the deal will pave the way for further agreement on more difficult issues between the two countries, such as China's support of its state-owned enterprises. Also, neither country plans to remove tariffs put in place over the past 18 months, as part of the deal.