Hong Kong: News that the US and China are near a trade deal that could lift most or all American tariffs did little to bring out the animal spirits from Asia stock traders. But when China said “substantial progress” was made, that appeared to do the trick.
The MSCI Asia Pacific Index spiked up around 11:24am in Hong Kong, with shares in Shanghai and Shenzhen taking their gains to more than 2.6 per cent before the trading break. The gauges were up 2.6 per cent and 3 per cent, respectively shortly before 2pm.
Chinese stocks have gained $1.1 trillion (Dh4.04 trillion) since the start of February, with their value sitting at $6.78 trillion as of Friday’s close. If the rally endures, you’d be looking at $7 trillion at the end of Monday.
One sticking point in the negotiations — intellectual property — seems to be getting addressed, with a new Chinese foreign-investment law to strengthen its protection.
Trade talks have been a constant focus of investors’ minds as the war between the US and China has shown its damage. A pair of ugly factory survey prints from Taiwan and South Korea earlier Monday is just the latest sign of how it’s affected not only China, but many export-heavy economies in the region — meaning that a resolution could be a big win for all.
There’s more coming that may influence the mood as Chinese leaders meet in Beijing this week to detail the nation’s priorities for the year and goals for the economic expansion. And remember that beginning in May, MSCI Inc. will start the process of increasing exposure in its gauges to the so-called A shares, meaning that China will have a bigger impact on the region’s equity benchmark.
Asian markets have already priced in plenty of benefit to the trade negotiation, with the 8.2 per cent rally in the MSCI Asia Pacific Index through the first two months of the year being its best beginning since 2012. As Nick Twidale, the chief operating officer at Rakuten Securities Australia Pty, says, “we seem to be in a much better place than a week ago.” And now what the market wants to keep going is details.
“No market ever plateaus and goes and collapses, so there’s no immediate retracement in sight,” said Stirling Larkin, chief investment officer with Australian Standfirst Asset Management, said on Bloomberg Television. “What that means by implication is we will see a spike, we will see a rally in equity markets and then possibly a retracement from there. So you stay in mainland equity bourses, you stay in the S&P 500 if you believe there’s steam, if not you start pivoting now.” As Bloomberg Macro Strategist Mark Cudmore notes in Monday’s Markets Live question of the day, the MSCI All-Country World Index needs to climb another 8 per cent to hit a fresh record. Is a signed trade deal worth that much? We shall see.