China Markets Set for Post New Year Upside on Trade Optimism

• Chinese exports rose 6.6% year-over-year in December 2025, with exports to Africa surging 25.8% while US-bound exports fell 20%, as Beijing diversifies trade partners ahead of April's Trump-Xi meeting.
• China plans to eliminate tariffs for 53 African nations starting May, after annual trade exceeded $300 billion, and now accounts for 20.9% of Latin American exports (excluding Mexico), surpassing both the US (16.4%) and EU (12.4%).
• Key downside risks include intensifying US-China trade tensions, potential tariffs from multiple governments, China's relationship with Iran as a major oil importer, and ongoing domestic challenges including deflation and the housing market crisis.

Summary: China Markets Set for Post New Year Upside on Trade Optimism

Key Performance Metrics

Chinese equity markets are outperforming US indices in 2026, with the Shanghai Stock Exchange (SSE) Composite and Hang Seng Index trading above both 50-day and 200-day EMAs. USD/CNY has declined 4.2% in 2025 and an additional 1.22% in early 2026 to 6.9075, reaching its lowest level since the Global Financial Crisis.

Trade Diversification Strategy

China's export strategy is proving successful, with December 2025 exports up 6.6% year-on-year. However, geographic composition shifted dramatically: exports to Africa surged 25.8% while US exports fell 20%. Annual China-Africa trade exceeded $300 billion, with Beijing planning tariff cuts for 53 African nations starting May. China now accounts for 20.9% of Latin American and Caribbean exports (excluding Mexico), importing $180 billion annually versus $142 billion for the US.

Market Drivers and Risks

China's US Treasury holdings have fallen to their lowest level since 2008. Key bullish factors include robust external demand, AI advancements, improved chip manufacturing, and expectations of further fiscal and monetary support from Beijing. The April meeting between Presidents Trump and Xi Jinping could extend the trade war truce.

Technical Outlook

The SSE Composite Index targets resistance at 4,191 (January high) with potential upside to 4,317 (July 2015 high). The Hang Seng Index eyes 28,056 with a medium-term target of 30,000—a level unseen since 2021.

Downside risks include escalating US-China tensions, particularly regarding Chinese companies supporting Iran's oil exports, ongoing housing market weakness, and deflation concerns.