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Parts of the UK stock market are rallying Monday (12 May), driven by a significant breakthrough in US-China trade relations. Over the weekend, both nations agreed to suspend most of their reciprocal tariffs for 90 days, slashing rates by 115%.
This means US tariffs on Chinese goods drop from 145% to 30%. Meanwhile China’s tariffs on US products fall from 125% to just 10%. It’s clearly a fairly notable de-escalation in trade tensions. These tariffs and tensions had weighed heavily on global markets and fuelled recession fears.
Renewed optimism
This thaw looks set to inject fresh optimism into equity markets worldwide. In the UK, part of the FTSE 100 surged, with mining and Asia-focused banking stocks leading the charge. Companies such as Glencore, Anglo American and Rio Tinto posted gains of 4-6%. This reflects hopes that a more open trade environment will boost global demand for commodities and support their international revenues.
Standard Chartered (LSE:STAN) and HSBC also climbed, benefiting from improved sentiment towards Asia and a stronger US dollar. The latter lifts the value of overseas earnings for many FTSE-listed multinationals.
The significance of the tariff reductions cannot be overstated. Over the past six weeks, the tit-for-tat tariffs — which peaked at 145% on US imports from China and 125% on Chinese imports from the US — stoked fear in stock markets.
With supply chains disrupted, costs set to soar, and more inflation on the cards, the trade war looked set to deliver a global economic slowdown — and it still could. However, the 90-day pause and sharp tariff cuts signal a willingness on both sides to seek a longer-term solution, reducing the risk of a full-blown trade war and potentially averting a global downturn.
For UK investors, the rally should highlighted the interconnected nature of the FTSE 100. Miners, oil companies and banks — which represent a fair proportion of the index — often rise and fall on news relating to China.
One that stands out…
Of the aforementioned stocks, Standard Chartered stands out as an intriguing investment opportunity to consider. It offers exposure to Asia’s growth story and China’s evolving economy. The bank’s deep links to China are a key differentiator with its Hong Kong business delivered 21% income growth and 77% pre-tax profit growth in 2023, while its ‘corridor‘ business connecting China and Hong Kong grew 30%.
Financially, Standard Chartered looks attractively valued. It trades at just 8.6 times forward earnings. This falls to 5.9 times by 2027. Meanwhile, it offers a rising dividend yield that could reach 3.7% by 2027. Recent results have been strong, with double-digit income growth in key divisions and robust capital returns to shareholders through buybacks and dividends.
However, risks remain. The bank’s fortunes are closely tied to China and emerging markets, making it vulnerable to renewed trade tensions or a slowdown in China’s recovery. Credit impairments have risen. Geopolitical shocks could also impact earnings. It’s a stock I’ve been keeping a very close eye on. For now, I’m keeping my powder dry, but that could change if an entry point emerges.
