China shares gain, yuan up on Sino-US trade war pause
SHANGHAI/ HONG KONG: Chinese shares, commodities and the yuan currency jumped on Monday after Chinese and US leaders agreed to a temporary truce in their bitter trade war, but the longer-term outlook for trade relations remains murky.
The deal between Presidents Donald Trump and Xi Jinping postponed the most pressing threat to the global and Chinese economies – a sharp hike in US tariffs that had been slated for Jan 1.
But analysts cautioned it has only bought a bit more time for wrangling over deeply divisive trade and policy differences, and said China’s economy will continue to cool regardless under the weight of weakening domestic demand.
Still, the news offered some relief for the country’s battered stock markets, which had tumbled over 20 per cent at one point this year, prompting a flurry of support measures.
At the midday break, China’s benchmark Shanghai Composite index was 2.9 per cent higher and blue- chip shares surged 3.1 per cent. Government bond futures fell as shares rallied, with the 10year treasury futures for March delivery, the most-traded contract, falling 0.26 per cent at the open. It was last down 0.07 per cent at 96.630.
Shares in Hong Kong also jumped, with the Hang Seng index adding 2.7 per cent at midday, and breaking through the 27,000 level for the first time since Oct 4.
The China Enterprises Index is 2.8 per cent higher at midday.
“This is a relief rally. The markets are oversold. I don’t think we needed much of an excuse (for a rebound),” said Paul Kitney, chief equity strategist at Daiwa Capital Markets in Hong Kong.
The agreement “is not a ceasefire, it’s just a de- escalation. The existing tariffs are still having a negative impact on the Chinese economy, they haven’t gone away.”
The White House said Beijing had agreed to buy an unspecified but “very substantial” amount of agricultural, energy, industrial and other products.
It said the two sides would launch new talks to address issues including technology transfer, intellectual property and nontariff barriers. But the White House also said the existing 10 per cent tariffs on US$ 200 billion worth of Chinese goods would be lifted to 25 per cent if no deal was reached within 90 days.
China praised the “important consensus” reached in the deal, but did not mention the 90- day deadline.
Despite the differences in the wording and uncertainty about some details, the agreement was a better outcome than investors had expected, said Zhang Gang, an analyst at China Central Securities in Shanghai.
At the same time, the outcome of the meeting is “unlikely to immediately spark a turnaround in market sentiment,” he said.
“While this means the effect of the trade war may pause for a moment, we’re still facing domestic issues including slowing growth, and awaiting more information about the direction of macroeconomic policy and eagerly expected measures like tax cuts.” — Reuters