Stocks leap after Trump delays tariff increases
Print Edition
CHINA stocks posted their biggest single-day gains in more than three years yesterday after US President Donald Trump said he would delay an increase in tariffs on Chinese goods thanks to “productive” trade talks.
Trump said he and Chinese President Xi Jinping would meet to seal a deal if progress continued.
The benchmark Shanghai Composite Index surged 5.6 percent to 2,961.28 points, its highest close since June 15, 2018, and the strongest daily percentage gain since July 9, 2015.
The blue-chip CSI 300 index, which tracks the 300 largest companies listed on the yuan-denominated A-share markets in Shanghai and Shenzhen, also posted its biggest one-day rise since July 9, 2015, ending 5.9 percent higher at 3,729.48 points, the highest closing level since June 15, 2018.
The smaller Shenzhen Component Index soared 5.59 percent to 9,134.58 points, the highest close since the end of July 2018.
The ChiNext index, China’s Nasdaq-style board of growth enterprises, jumped 5.5 percent to 1,536.37 points.
The combined turnover on the Shanghai and Shenzhen stock exchanges totaled 1.04 trillion yuan (US$156 billion), the biggest since December 2015.
“As a result of these very productive talks, I will be delaying the US increase in tariffs now scheduled for March 1,” Trump announced on Twitter on Sunday.
“Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago (Trump’s Florida resort), to conclude an agreement.”
All but 14 of 3,649 stocks in Shanghai and Shenzhen recorded gains. Shares of more than 300 companies surged by the daily limit of 10 percent.
The Shanghai Composite has rebounded 18.74 percent since the beginning of this year and surged more than 21 percent from this year’s lowest point of 2,440.91 points seen in early January, after falling more than 11 percent in the fourth quarter of last year.
The CSI 300 has rallied 23.9 percent in the year to date.
China’s markets still have the momentum to extend the rise until March, with positive factors such as the accelerated reform of the domestic capital market system bolstering market confidence, according to Capital Securities.
Gao Ting, head of China strategy at UBS Securities, said: “To a large extent, we think the rebound is justified.”
However, the CSI 300’s recent rapid gain puts the market a long way ahead of fundamentals, he said. “In our view, several near-term risks are worth noting.”
Gao expected a period of consolidation and preferred sectors including banks, food and beverages, construction, railway equipment, renewable energy, nuclear power operators, duty-free firms and airports.
Market expectations on policies such as tax cuts and consumption-boosting measures will face a reality check during the annual session of the National People’s Congress in March.
The upcoming “Two Sessions” of the NPC and the Chinese People’s Political Consultative Conference may continue tax cuts and fee reductions, said Yang Ouwen, a senior analyst at Chuancai Securities.
The financial sector was the strongest among all sectors yesterday, with the sub-index surging 9.11 percent and all brokerages surging by the daily limit of 10 percent.
China should deepen supply-side structural reform in the financial sector and strengthen the sector’s ability to serve the real economy, and economy and finance are interdependent and should grow and thrive together, according to a study session of the Political Bureau of the Communist Party of China Central Committee on Friday.
The sector’s strength also came as the China Banking Association and the Securities Association of China both planned to lower the costs of being a member, with the banking association expecting to reduce membership fees by 14.5 million yuan in 2019.
Although both plans are designed for the members of the two associations, they have lifted market expectations for industry-wide stimulus in the future.
Trump’s announcement also pushed China’s yuan higher, with the onshore unit trading as firm as 6.6738 per US dollar, its strongest level since July.
The central bank set the central parity rate of the Chinese currency 20 basis points higher at 6.7131 against the greenback yesterday. The yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day.
“A delay in the tariff deadline is what has been expected,” said Frances Cheung, head of macro strategy at Westpac. “Beyond the initial reaction, however, market will need a follow-up in terms of a trade deal for further impetus.”
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