Watch These China Titans as Trump Angles for 'Phase 2' Trade Deal

Coming into this year, my initial call was that Indian consumer stocks were the favored Asia play in 2025. But I was too early in that outlook, and revised my base case in mid-February. 

I suggested that investors turn to Hong Kong-listed China plays. Prior to this tariff tantrum, Hong Kong’s “H shares” and “red chips,” China-based and China-focused companies, respectively, were the top performing stocks globally.

It’s worth revisiting both calls. It is very hard to time markets at the best of times. And for stock pickers, this is likely the worst of times, since the direction of stocks currently has nothing to do with fundamentals or even macro trends. It’s driven completely by tariff politics, and the tit-for-tat trade war bubbling away between the United States and China.

Asian Shares Should Be Doing Worse

Each time I look at Hong Kong and China stocks, I’m surprised that they aren’t performing more poorly. The Hang Seng had finally turned around four horrible years of performance. Both the Hang Seng Tech Index and the Hang Seng China Enterprises indexes were outdoing the flagship Hong Kong benchmark.

And each time I look at India, I note that the Mumbai markets are proving to be surprisingly resilient. Only the worst of the global selloffs even nicks the Nifty 50 or Sensex indexes. After a market holiday yesterday in India, Indian equities are today’s top Asia performers, with the Sensex up 2.1% and the Nifty 50 up 2.2%.

Having bottomed in early March and again in early April, Indian stocks have reclaimed almost all their lost ground, leaving them slightly in the red for the year so far, down around 2.0%. That’s better, for instance, than the 7.9% decline in the S&P 500.

India Better Off Than Expected

India has historically had some of Asia’s most-protectionist policy environments, with foreign investors and companies facing high hurdles to climb to enter India. So, you might have expected it to come off worst if the White House “reciprocal” tariffs had in fact had anything to do with the tariffs and trade barriers that countries have in place.

Instead, India is temporarily being treated the same as countries that have U.S. free-trade deals, or very low tariffs. Add to that optimism a surprise interest-rate cut from the Central Bank of India last Wednesday, which shifted its monetary-policy stance toward further cuts, and you have a supportive environment on the subcontinent.

So, I currently see Indian equities as something of a safe haven in Asia. India benefits from any China weakness, and from companies such as Apple AAPL attempting to diversify a production base that, the pandemic revealed, was heavily overweighted toward China.

“India currently contributes around 10% of U.S. smartphone imports, and could see a sharp increase in exports to the U.S. going ahead,” Nomura’s India consumer durables analysts Siddhartha Bera and Kapil Singh wrote in a note to clients.

India Production to Boom at China’s Cost

Foxconn Technology HNHPF (TW:2317), Apple’s primary assembly supplier, says the share of iPhone production coming from India could rise from 12% to 16% last year to 21% to 25% of production for 2025. We’ve already heard that Apple is reportedly chartering cargo planes to air lift as many as 1.5 million iPhones from India to the United States, as first reported by Reuters, as they scramble to circumvent the 125% new tariff on Chinese goods.

Indian imports would be subject to a tariff of 26%, according to U.S. President Donald Trump’s infamous Rose Garden chart. But those rates are now on hold after a market meltdown prompted a 90-day pause in their implementation.

Short-term planning for a company such as Apple must be miserable right now. I can’t fathom the number of meetings and decisions that get made only for a new pronouncement to undo all that planning and force another round of new deliberations.

Long term, we can expect India to be a winner, offering a largely English-speaking work force. The democratic government is a lot less efficient than the command style found in Communist China and Vietnam, which is what attracted a company like Apple to China in the first place. But India and nearby low-production nations such as Sri Lanka and Bangladesh stand to gain from diversification away from China.

India Defensive Play

I would therefore recommend an India-focused exchange-traded fund (ETF) based on a “smart” or sectoral index as a defensive long-term play. You can look at the second-largest U.S.-listed India ETF, the WisdomTree India Earnings Fund EPI. Or to get more granular, you can look to consumer growth within India with the Columbia India Consumer ETF INCO. To capture any of the “China story” that India manages to claim at China’s cost, turn to the VanEck India Growth Leaders ETF GLIN.

INCO tracks 30 companies in the “consumer staples” or “consumer discretionary” sectors. GLIN aims to identify “quality” Indian equities by following the MarketGrader India All-Cap Growth Leaders Index, which scores companies based on 24 fundamental factors, in fourth main categories: growth, value, profitability and cash flow.

China’s Tech Titans Worth Watching

My China call has been heavily disrupted by the tariff tantrum. But I’ve had comments on stories and emails from readers asking if the kinds of companies long favored by U.S. investors are now a buy, led by perennial favorite Alibaba Group Holdings BABA (HK:9988).

The problem with my shift in thinking in mid-February is that many of China’s seven “Tech Titans” had already experienced big run ups. They have since given back much of their 2025 gains.

The mainland markets captured by the CSI 300 are subject to meddling from the Beijing government. It’s in Shanghai and Shenzhen that four state-owned asset managers say they will do their buying to support stocks given the April tumult.

But the persistent strength of the Hong Kong market, where international institutional investors are free to buy and sell as they choose, that suggests we will not see a protracted trade war between the United States and China.

I could be wrong. But I believe Trump is angling for a “Phase Two” trade deal with China that he can champion. There was a well-researched piece in The New York Times in February suggesting that the U.S. president has been brooding on the lack of implementation of the original “Phase One” deal struck in 2020. He intends in his second term to “strike the deal of a century” with Chinese President Xi Jinping.

If that’s the case, and we don’t see a prolonged fallout between China and the United States, stocks like BABA now offer a bargain for aggressive investors. BABA hit HK$143 in Hong Kong trade in March, and is back down near HK$100. That’s well up from the HK$82 level where it began the year, but leaves plenty of room to run.

For aggressive, contrarian investors who share my view that a China trade is likely, the Seven Titans are worth watching, if not buying now at a knocked-down price.

Besides BABA, they are electric-vehicle maker BYD BYDDY (HK:1211); No. 2 e-commerce platform JD.com JD (HK:9618); video game developer NetEase NTES (HK:9999); semiconductor maker SMIC (HK:0981); app and entertainment empire Tencent Holdings TCEHY (HK:0700); and smartphone Xiaomi XIACY (HK:1810), now moving into the market for electric vehicles with a performance model.

U.S. investors have direct access to six of the seven, after state-owned chip company SMIC delisted from the NYSE before it got shoved. Like BABA, they dipped on April 7 and have yet to regain their highs of the year set in March. 

At the time of publication, McMillan was long AAPL and BYDDY.