The View | Even if Trump and Xi make up at G20 in Buenos Aires, don’t hold your breath for a meaningful market rally

The highly anticipated meeting between the two heads of state at the G20 leaders’ summit in Buenos Aires at the end of the week is fuelling speculation that even a temporary ceasefire, or at least a pledge to keep negotiating, could provide a fillip to sentiment at a time when the mood in markets is increasingly bleak.

Not only has the trade war contributed significantly to the global growth scare that has become more pronounced over the past few months, it has exacerbated the acute tensions between Beijing’s two-year-old deleveraging campaign and its efforts to shore up growth. The policy confusion in China, whose equity market is this year’s worst performing major benchmark, has infected the broader emerging market asset class. If one excludes Chinese stocks, equities in developing economies are still down more than 15 per cent this year, compared with a 22 per cent fall in the Shanghai Composite.

Yet, even in China, sentiment was deteriorating before the trade conflict escalated in mid-June when America imposed tariffs on US$50 billion of Chinese imports. By the end of May, the Shanghai Composite was down 14.5 per cent from its peak in late January. The yuan’s steep decline against the dollar, moreover, began in April. Markets have been fretting about slowing domestic demand in China since the beginning of this year and have viewed the deleveraging drive as a bigger threat to growth than the trade war.