Prospects for Sino-US APEC: Ease of relations may boost China’s economy and assets.

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With President Xi Jinping visiting the United States for the first time since 2017 and planning to meet with U.S. President Joe Biden, market traders are hopeful about a possible thaw in Sino-U.S. relations. Such improved relations could provide a boost to the Asian country's stressed assets.

Wednesday's meeting in San Francisco is seen as a critical moment. President Xi Jinping visited the United States for the first time since meeting then-President Donald Trump in 2017. This is also the first conversation between him and Biden in a year. Biden has largely kept in place the tariffs Trump imposed on a range of Chinese goods and has supported restrictions on China's access to advanced technology.

The easing of tensions between the two superpowers, China and the United States, could be a turning point in attracting investors back to the Chinese market. Stock and currency traders are paying close attention as Chinese stocks are reeling from a multi-year housing crisis, global capital outflows and the yuan slump to a 16-year low against the dollar.

Xia Xiaojia, chief researcher of Credit Agriculture Group, said: "Signs of improvement in bilateral relations, even moderate improvements in the short term, may temporarily boost investment sentiment.

The two countries have recently taken steps to ease tensions. Presidents Joe Biden and Xi Jinping are understood to be announcing an agreement that would require Beijing to crack down on the manufacture and export of fentanyl - the drug used to make the deadly synthetic opioid. Separately, Beijing may announce its commitment to the Boeing 737 jet during the Asia-Pacific Economic Cooperation summit. China, the world's leading soybean importer, bought more than 3 million tons of soybeans from the United States last week as a goodwill gesture ahead of the talks.

Hao Hong, chief economist of Growth Investment Group, said: "The news of China's purchase of U.S. soybeans heralds the warming of bilateral relations, which is the key to determining the flow of foreign capital.

Here are a few key areas to watch:

Technical fields

China, the world's largest semiconductor market, has been grappling with increasing U.S. sanctions on its technology industry. Any signs of easing could bolster investor sentiment at companies ranging from Apple Inc. to Taiwan Semiconductor Manufacturing Co., Ltd., Samsung Electronics Co. and Nvidia Corp.

Internet and tech hardware stocks are more likely to be affected because they have been hit hard, but I think overall China will benefit from this." Conrad Sa, senior portfolio manager in Neuberger Berman's emerging markets equity team in New York Erdanha said. "Any dialogue is a positive step for the economies of both sides. China currently benefits more from it. Given the slowdown in its economic growth, there is a lot of negative sentiment in the market.

Meanwhile, Chinese technology stocks, such as Semiconductor Manufacturing International Corp. and Hua Hong Semiconductor, are favored by local investors because of their ability to bypass U.S. restrictions.

Huawei released a smartphone equipped with an advanced 5G processor independently developed in China, boosting the share prices of local component manufacturers such as Will Semiconductor and Max Semiconductor. These companies could get a boost if tensions ease or if Xi Jinping strengthens the resources to achieve high-tech self-sufficiency.

Leaders may discuss how to "make the technology industry more transparent to each other or establish regular communication channels." said Raymond Wang, strategist at Saxo Capital Markets in Hong Kong.

Green Energy

The focus on green goals could trigger a rally in EV-related stocks such as top battery maker Contemporary Amperex Technology Co., Ltd. and solar equipment maker Longi Green Energy Technology.

“We can focus on advanced manufacturing areas, including solar energy, lithium batteries and new energy, which may see more restrictions relaxed from the United States.” said Wu Wei, fund manager of Beijing Integrity Investment Management.

China leads the electric vehicle race, with more than 80% of the world's lithium-ion battery production capacity. Biden hopes to change that. His signature tax cut bill provides tax breaks for American-made electric vehicles. Not far behind is the European Union, which is investigating Beijing's electric vehicle subsidies to prevent cheap imports.

Electric carmakers like BYD will also be in the spotlight if the two countries agree to some form of detente amid growing industry protectionism.

Foreign exchange market attention

According to Louis Lu, chief economist at Oxford Economics, some investors are considering the possible impetus for Sino-US relations after the summit and whether measures will be taken to relax regulatory restrictions, encourage private investment and revive business sentiment.

This will be positive because regulatory uncertainty in China is one of the reasons why the yuan continues to weaken and the stock market continues to show weak sentiment." She said.

China has spent a lot of time trying to stabilize its yuan, one of the worst-performing currencies in Asia this year behind the Japanese yen and Malaysian ringgit. The People's Bank of China keeps such a tight rein on its benchmark interest rate that its volatility gauge has fallen to its lowest level since 2010.