Chinese equity markets boosted by progress in US-China trade talks

Feb 25, 2019
Blue-chip CSI 300 Index hits highest level since June 2018

Equity markets in China have been boosted by US President Donald Trump’s announcement that there has been ‘progress’ on a US-China trade deal and his extending of the March 1 deadline.

The blue-chip CSI 300 Index rose 4 percent on the news, hitting its highest level since June 2018 and rising more than 23 percent from January lows.

According to Trump’s tweets, there has been ‘substantial progress’ between the two sides, following talks. The president also suggested the possibility that he might sign off a deal when he meets with China’s leader, Xi Jinping, in March.

Trump announced he was extending the deadline on increasing tariffs on $200 bn of Chinese imports beyond March 1, potentially removing the risk of a trade war between Washington and Beijing escalating further and preventing pulling the world into a deeper slowdown.

China’s official Xinhua news agency supports this narrative, saying in a commentary that the goal of an agreement is getting ‘closer and closer’. Almost every stock on China’s CSI 300 Index has risen in response, with financial stocks and technology companies leading the rally.

Hussein Sayed, chief market strategist at broker FXTM, says in an investment note that politics played a part in this move: ‘The trade dispute has been a painful one for both countries [as well as] the world, especially as it occurred when the economic cycle approached a peak.

‘While China wants to prevent a hard landing, Trump wants to fulfill one of his key campaign promises to correct the trade deficit. To support his re-election bid, however, [he] needs to avoid dragging down the US economy [so he has to] announce a deal, even though it might not look like a perfect one.’

Tai Hui, Asia chief market strategist at JPMorgan Asset Management, says the announcement ‘helps to underpin positive investor sentiment.’

This completes a strange 12 months for China’s stock market, which underwent a steady fall in 2018, before a surge in January and again this month.

But Moody’s Investors Service sovereign risk group managing director Marie Diron is cautious in a note. ‘While some compromise may be reached between the US and China on certain trade matters, the process is unlikely to be smooth and the US-China relationship should remain contentious, swinging between compromise and conflict, and involving frictions not only on trade, but also on technology, investment and geopolitics,’ she writes.

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