China Market Update: Trade Truce Back On

Key News

Asian equity markets cheered the readout from the US-China trade talks in London, as Taiwan and South Korea outperformed, while Singapore and Indonesia underperformed.

The London talks re-implemented the Geneva agreement, marking a positive step that could pave the way for further negotiations to unwind the trade war. The big picture: the Chinese government’s release made clear that the recent phone conversation between President Trump and President Xi Jinping was critical in making a deal feasible. One could argue there have been more substantive discussions during Trump’s first six months than during the previous administration’s four years.

The Hang Seng Index cleared its pre-Liberation Day level and is closing in on its mid-March high, which would put it about 20% below its all-time high from February 2021. The Hang Seng Tech Index, Shanghai Composite Index, and Shenzhen Composite Index all returned to their pre-Liberation Day levels and continued to grind higher.

Hong Kong saw another broad rally, with both growth (internet, electric vehicle/hybrid) and value (brokerage, precious metals, mining/metals, oil) sectors participating. Alibaba Group Holding Limited rose +1.34% despite going ex-dividend today, with a Hong Kong dividend of HK$0.13 and a US dividend of $1.05 per share. Gaming stocks were notably higher, led by Bilibili (+9.92%), NetEase (+2.05%), and Tencent (+0.88%), following a government release supporting gaming companies’ efforts to “go global.”

The electric vehicle (EV) and hybrid sector also advanced, as BYD (+3.83%), XPeng (+3.02%), and NIO (+4.04%) outperformed. The rally was partly attributed to reports that auto companies had agreed to pay part suppliers within 60 days. The China Association of Automobile Manufacturers announced that, year-to-date through the end of May, 12.826 million cars were produced in China (+12.7% year-over-year) and 12.748 million cars were sold (+10.9% year-over-year). Notably, 44% of all cars sold were EVs and hybrids. Year-to-date through the end of May, EV and hybrid sales grew +44% year-over-year to 5.608 million units.

Brokerage and financial stocks were higher on reports that the Shenzhen Stock Exchange would list Hong Kong stocks, though details remain sparse.

Healthcare, which had been on a recent tear, declined in both Hong Kong (-0.79%) and Mainland China (-0.22%), perhaps a case of tempting fate.

Mainland China also had a good session, though trading volumes were slightly below average. The Ministry of Finance announced support for improving the “basic pension security level,” especially for the country’s 300 million elderly, as well as further backing for free preschool education and accelerated implementation of the child care subsidy system.

On the corporate front, Starbucks appears closer to selling a stake in its China business, according to Chinese financial media. The Ministry of Foreign Affairs weighed in on the Panama port sale by CK Holdings, stating opposition to “coercion and bullying.” The port sale has been quiet lately—similar to the TikTok ban—proving the old adage: out of sight, out of mind!

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.18 versus 7.18 yesterday
• CNY per EUR 8.22 versus 8.20 yesterday
• Yield on 10-Year Government Bond 1.64% versus 1.66% yesterday
• Yield on 10-Year China Development Bank Bond 1.70% versus 1.71% yesterday
• Copper Price +0.06%
• Steel Price +0.61%