Investors see limited gains from Trump-Xi summit as Iran war risks cloud outlook

The focus on “strategic stability” at the summit between US President Donald Trump and Chinese President Xi Jinping is expected to ease geopolitical risks between China and the US from the perspective of Chinese markets. But limited progress on trade and the ongoing Iran war are likely to keep investor enthusiasm restrained.

Trump’s first visit to Beijing since 2017 ended on Friday without a major breakthrough on trade or any concrete progress toward ending the US-Israeli war against Iran that has rattled global markets for more than two months.

Although investor expectations for the summit had been limited, markets had hoped the talks could provide a roadmap for resolving the war, which has pushed up energy prices as turbulent negotiations between Washington and Tehran continue.

China’s yuan fell to its lowest level against the dollar in nearly two weeks on Monday as investor focus shifted away from the summit toward a global bond selloff triggered by inflation concerns and fresh signs of tension related to the Iran war.

Chinese equities traded largely flat on Monday after falling more than 1% on Friday, as a risk-off mood dominated global markets.

William Bratton, head of Asia-Pacific cash equity research at BNP Paribas, said the summit was unlikely to deliver tangible gains for equity investors in the short term, but that its longer-term implications for reducing geopolitical risk were positive.

“That should also alter investors’ perception of risk and encourage US capital to reassess the relative attractiveness of Chinese investment opportunities,” Bratton said.

“After all, we have seen US investors gradually adopt a more positive stance toward Chinese equities since the start of the year, and we expect that to continue as US-China bilateral relations stabilize, or perhaps more accurately, become more predictable,” he added.

Monday’s muted market reaction to the summit also followed data showing China’s economic growth lost momentum in April, with industrial output and retail sales coming in significantly below expectations.

Analysts at Capital Economics said the optimistic interpretation was that, although no major breakthrough had been achieved, the summit helped reinforce the trade truce and reduced the risk of renewed escalation in the near term.

“Trump’s invitation for Xi to visit the US in September also increases the likelihood that the two sides will get along over the coming months,” the analysts said in a note.

Investors had hoped the talks might help pave the way for a peace agreement in the Middle East. But markets remain cautious about renewed turbulence after China, the largest buyer of Iranian oil, gave no clear indication it would throw its weight behind the conflict.

Analysts said geopolitical differences between the two countries were clearly reflected in the opposing positions taken by Washington and Beijing on the Iran war and the Strait of Hormuz, through which roughly one-fifth of the world’s oil and liquefied natural gas normally passes.

Trump said Xi agreed that Tehran should reopen the strategic waterway, while Xi made no comment on his discussions with Trump regarding Iran. China’s Foreign Ministry described the conflict as one that “should never have happened and has no justification to continue.”

Charu Chanana, chief investment strategist at Saxo, said that without clear follow-up action on trade, Taiwan or the Iran conflict, the meeting risked being seen as a “non-event”: positive for sentiment, but insufficient to alter the market backdrop.

“This is where the risk still lies,” Chanana said. “Investors may be underpricing the possibility that the Iran conflict keeps oil prices elevated, inflation expectations sticky and bond yields higher for longer,” she added.

Separately, analysts said Taiwan would remain a key factor in US-China relations after Xi warned Trump that mishandling the island could lead to conflict between the two powers.

Sam Jochim, economist at Swiss private bank EFG International, said it would be significant whether Trump approves a $14 billion arms sale to Taiwan.

“Such a move has the potential to destabilize his relationship with Xi,” Jochim said.

Trump also introduced an element of uncertainty on Friday by saying he had not yet decided whether to proceed with a major arms sale to Taiwan.

The trade truce reached after a series of retaliatory escalations between the US and China is expected to expire later this year, and the lack of tariff clarity during the summit weighed on investor sentiment.

Even the agreement highlighted as the most significant tangible outcome of the talks disappointed investors: Boeing shares fell after Trump said on Thursday that China would buy 200 aircraft from the company, a figure far below analyst expectations.

Despite limited progress on trade, Nomura chief China economist Ting Lu described the two-day summit as an exercise in “economic and political risk containment” that delivered short-term stability for both leaders.

“The G2 powers have decided that if they must be rivals through the remainder of 2026, they will at least be predictable, transactional and tightly managed rivals,” Lu said, referring to a term Trump used for the pair in October.