US-China tension has thawed. At least, the worst of the trade war is over.
I’ll explain.
Last week, Nvidia got the green light to sell its H20 GPU chips to China. The H20 is a modified high-performance AI chip built to meet US export restrictions, yet powerful enough to meet China’s AI ambitions.
AMD is also allowed to sell its MI308 chips – another advanced AI processor for China.
As a result, semiconductor stocks were up ~10% over the past month. The S&P 500, Nasdaq and the DJIA have hit fresh records. Even Singapore’s STI broke out into a new peak.
This sent a clear message: trying to curb chip exports to China isn’t Trump’s priority anymore.
I believe crucial shifts are happening — China tech’s on a tailwind
Meanwhile, Alibaba could be a beneficiary to the easing of the trade war. Its ability to access Nvidia’s and AMD’s new chips to meet China’s massive AI demand will be a big tailwind (Diligence members will know I own Alibaba both in my Personal Portfolio and Smaller Portfolio).
Look, Alibaba is China’s biggest private cloud provider and hyperscaler – a critical piece to China’s AI ecosystem.
I’ve no doubt with the launch of China’s DeepSeek earlier this year, the global AI race will heat up again, especially as the country accelerates toward artificial general intelligence (AGI).
The big question is…
Will China outperform the US market?
China’s CSI 300 index – which tracks the top 300 A-share companies listed on the Shanghai and Shenzhen stock exchanges – has staged a quiet, powerful rebound.
Over the past year, it’s now matched US market performances.
I believe crucial shifts are happening.
First things first, I see one of China’s biggest problems is deflation.
This has worsened the problem of China’s “involution” – where businesses and local brands “race to the bottom”, competing fiercely on price and sacrificing a lot more for smaller profit margins.
This has forced endless price wars, driving oversupply and lack of differentiation. Yup, I saw this first hand when I was in China earlier in June.
We see this across electric vehicles, food, beverages, heavy industries. One example? Food delivery platforms that have begun slashing prices.
One critical focus is to look at big market leaders with durable economic moats.
China’s green shoots in consumption sector
Despite that, it seems China’s consumption pivot is showing green shoots.
During the G20 summit last week, China’s Vice Finance Minister Liao Min shared:
Let’s look at the numbers. Over the past four years, domestic consumption has account for ~56% of China’s GDP. That’s higher than it was in 2016-2020.
China’s current account surplus has also dropped.
The current account balance measures how much economic activity China does across the world – including capital flows, imports and exports.
This means the world’s second largest economy is relying less on exports and more on internal demand for growth.
You may disagree with me… China is focusing on domestic consumption more than trying to dominate global trade markets. That’s a healthy sign.
Next, local China brands are also competing on a global scale, even thriving in the international markets.
Companies like BYD and Pop Mart are gaining global market share – and building brand equity.
A case of the world’s biggest home appliance maker dividend grower
In one of our blog articles, my analyst has said this about Midea Group: “Given its successful growth overseas, Midea has a diversified revenue source. ~60% of revenue comes from China, with the rest of its revenues from overseas markets.”
But Midea isn’t just a Chinese brand. It’s a global manufacturing workhorse.
At a HK$600 billion market cap, Midea Group pays a growing dividend with a 5% yield. It’s also currently the world’s largest home appliance company – Selling air conditioners to washing machines.
Since 2020, Midea Group’s…
- Revenues grew 9.4% per year
- Gross profits grew 13.4% per year
- Net profits grew 9% per year
What’s more, its ROE stood at a 5-year average of 21%. ROE reflects how efficient a company is. This puts Midea as one of the most capital-efficient businesses in China.
Diligence members will know Midea Group is one of my best potential stock ideas in my Diligence Stock Watchlist.
What’s more, it has grew dividends 337% in the past ten years….
Click here to read Is the World’s Biggest Home Appliance Maker’s 5% Dividend Yield Secured?
Today, US markets are trading at “rich” valuations.
Investors are paying a lot more for the profits of US tech stocks. In contrast, China’s 13x PE is still trading at multi-year valuation lows.
At this point, China faces challenges – deflation and intense domestic competition. What’s more, all eyes are on its real estate recovery.
However, if China can continue to keep up with its consumption-led growth, companies like Alibaba and Midea Group continue to compound profitably, this could reflect an overlooked opportunity for the long-term dividend investor.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
