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SINGAPORE, May 18 (Reuters) - The focus on "strategic stability" during a summit between U.S. President Donald Trump and China's Xi Jinping will ease Sino-American geopolitical risks for Chinese markets, but little progress on trade and the Iran war will keep investor enthusiasm in check.
Trump's first visit to Beijing since 2017 ended on Friday with no major breakthroughs on trade or tangible help from Beijing to end the more than two-month-old U.S.-Israeli war on Iran that has roiled the global markets.
While investors had limited expectations from the summit, they had hoped the talks could provide a pathway for a resolution to the war, which has sent energy prices surging amid rocky negotiations between Washington and Tehran.
The Chinese yuan on Monday slipped to a near two-week low against the dollar, as investor focus shifted from the summit to a global bond selloff triggered by inflationary worries and fresh signs of Middle East tensions.
China stocks were largely flat on Monday after sliding more than 1% on Friday, as a risk-off mood descended upon global markets.
William Bratton, BNP Paribas' head of cash equity research for Asia-Pacific, said while the summit was unlikely to result in immediate wins for equity investors, the longer-term outcomes were positive in terms of reducing the geopolitical risk.
"This should, in turn, alter investor risk perceptions and may encourage U.S. capital to revisit the relative attractiveness of Chinese investment opportunities," he said.
"We have, after all, seen U.S. investors turn incrementally more positive on Chinese equities year-to-date and we expect this to continue as the U.S.-China bilateral stabilises or, perhaps more accurately, becomes more predictable."
The subdued market reaction to the summit on Monday also came after data showed China's growth lost momentum in April, with industrial output and retail sales both sharply missing expectations.
Capital Economics analysts said that the glass-half-full interpretation is that although there were no breakthroughs, the summit helped to cement the trade truce, reducing the near-term risk of a renewed escalation.
"The fact that Trump has invited Xi to visit the U.S. in September also increases the odds that the two sides will play nice over the coming months," they said in a note.
'TIGHTLY MANAGED RIVALS'
Investors had hoped the talks could help pave the way for a peace deal in the Middle East. But with China, which is the biggest buyer of Iranian oil, offering no clear indication that it would weigh in on the conflict, markets are wary of renewed turmoil.
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