Hong Kong stocks surge after Trump holds back on retaliation

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Shares in Hong Kong and mainland China jumped on Monday in the first day of trading after Donald Trump said he would revoke the city’s special trading status but failed to unveil any specific measures against the financial hub.

Hong Kong’s Hang Seng index rallied more than 3 per cent while China’s CSI 300 gauge of Shanghai- and Shenzhen-listed shares added 1.7 per cent, as investors deemed that Mr Trump had pulled his punches in a press conference on Friday.

Speaking after markets closed in Asia, Mr Trump said he would revoke special trade privileges for Hong Kong in retaliation for Beijing’s decision to impose a controversial security law on the former British colony.

The announcement that Washington no longer considers Hong Kong as autonomous from China has raised concerns over its impact on the territory’s role in international trade and financial services.

However, traders on Monday pointed to the fact that Mr Trump’s announcement had already been well telegraphed earlier in the week by Mike Pompeo, secretary of state, and contained no specific new measures.

“What [Mr Trump] did not do . . . was withdraw from the US-China phase one trade agreement signed in January,” said Jeffrey Halley, senior market analyst at broker Oanda. “Nor did he impose sanctions on Chinese officials or persons connected to the regime. The collective sigh of relief in Asia is palpable this morning.”

Other market participants highlighted the absence of any significant escalation in tensions from Beijing on the issue over the weekend, as well as the muted reaction from Hong Kong protesters.

“China’s response to [the] US around the Hong Kong issue [will] probably be mild and US-China phase one deal is likely to hold,” added Johanna Chua, chief Asia-Pacific economist at Citigroup. Hong Kong “protests have been on a smaller scale since the news of the national security law, which also helps soothe market sentiment”.

Investor sentiment in mainland China was also supported on Monday by data that showed manufacturing activity in the country expanded in May for the first time since January.

The results of the Caixin-Markit purchasing managers’ index, however, indicated that the global effects of the coronavirus pandemic would continue to weigh on exports from the world’s second-largest economy.

Iris Pang, chief economist for Greater China at ING, said China’s recovery “should take a long time” due to weak global demand.

China’s onshore traded renminbi added 0.2 per cent to trade at 7.1212 per dollar. The dollar index, which tracks the greenback against a basket of currencies, lost 0.4 per cent.

Elsewhere in Asia, Japan’s Topix added 0.4 per cent on Monday while South Korea’s Kospi index rose 1.2 per cent. In Australia, the S&P/ASX 200 gained 0.5 per cent.

S&P 500 futures tipped the index to fall 0.1 per cent when Wall Street opens for trading later on Monday.

Oil prices slipped with Brent crude, the international benchmark, dropping 0.5 per cent to trade at $37.67 a barrel. WTI, the US marker, was little changed.

Additional reporting by Alice Woodhouse in Hong Kong

 

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