CHINESE shares climbed to a decade high on Thursday as US President Donald Trump and Chinese President Xi Jinping began a high-stakes meeting, fuelling cautious optimism for a potential trade-war truce that will help sustain bullish market sentiment.
Investors appeared heartened by early signs of cooling tensions between the world’s top two economies after recent escalations, while also positioning defensively with a sense of deja vu that the real deal may offer far less to celebrate.
“We are going to have a very successful meeting,” Trump said as he shook hands with Xi, adding that the pair might sign a trade deal on Thursday.
Xi said via a translator that he’s ready to “continue working with Trump to build a solid foundation for China-US relations.”
The benchmark Shanghai Composite Index reversed early losses, rising as much as 0.2 per cent to 4,025.70 in morning trading, reaching its highest since 2015, driven by hopes for de-escalation in the US-China trade dispute.
Banking, insurance and liquor sectors led gains as sentiment remained cautious.
Hong Kong’s Hang Seng Index rose 0.6 per cent after resuming trade following a holiday on Wednesday.
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Trump, in South Korea on the final leg of his trip around Asia, has struck an optimistic tone about a trade truce.
The meeting in the southern port city of Busan was the first between the leaders since Trump returned to office in January.
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The stakes are particularly high given the breadth of this year’s rally across Chinese markets. Investors will look past broad comments and scrutinise details that may come out after the meeting, otherwise reaction might be muted, analysts said.
“Markets head into the Trump-Xi meeting cautiously optimistic, buoyed by recent signals of goodwill from both sides leading up to the meeting,” said Gary Tan, portfolio manager at Allspring Global Investments in Singapore.
A constructive tone should help sustain risk appetite among investors even though another truce extension and limited progress on structural issues remain the base case, Tan said, adding that the firm remains selectively positioned in China.
The Shanghai benchmark has rallied nearly 20 per cent this year, overturning the “uninvestable” narrative that had dominated global investor sentiment toward Chinese markets in recent years.
Beyond mainland China stocks, Hong Kong’s Hang Seng has surged over 30 per cent, ranking it among the best performing markets globally.
Despite US tariffs, Chinese exports to other parts of the world have remained resilient, while progress in China’s adoption of artificial intelligence and its development of semiconductors and innovative drugs this year has also given comfort to global investors.
Asian and global emerging markets funds made significant increases in their exposure to mainland China in September, HSBC said in a note on Monday, pointing out positioning in mainland China for Asia funds that HSBC tracks is near a 5-year high.
Still, some analysts caution that markets may be getting ahead of themselves with upside surprises already priced in.
Previous trade negotiations have seen promising starts followed by setbacks.
Latest episode in trade war saga
The latest tit-for-tat escalations erupted earlier this month as Trump unveiled additional levies of 100 per cent on China’s US-bound exports, along with new export controls on critical software by Nov 1, in a reprisal against China curbing its critical rare earth exports.
Trump said on Wednesday he expects to reduce US tariffs on Chinese goods in exchange for Beijing’s commitment to curb exports of fentanyl precursor chemicals.
The US could halve the 20 per cent levies on Chinese goods it currently charges in retaliation for the export of such chemicals, the Wall Street Journal reported.
“Both Washington and Beijing have strong incentives to pause the spiral of escalation,” analysts at Alpine Macro said. “A limited, face-saving deal, with symbolic gestures and modest trade concessions, is the more probable outcome.”
Partial tariff rollbacks may also do little to help loss-making Chinese exporters and manufacturers, or reverse weak consumer demand at home.
“The two countries remain at odds over fundamental issues such as technology controls and export restrictions, making it difficult to reach consensus in the short term,” analysts at Bank of East Asia said in a note. REUTERS
