Stocks in Asia jumped on Monday after the leaders of the U.S. and China announced a temporary halt in trade tariffs, with mainland and Hong Kong markets leading the region.
U.S. President Donald Trump and Chinese President Xi Jinping, meeting at the Group of 20 summit in Argentina over the weekend, declared a cease-fire in the two countries’ trade war. The U.S. agreed to not increase tariffs for 90 days and China said it would increase the amount of U.S. items it purchases, as the two sides work toward a broader trade agreement.
Investors pushed markets higher as they absorbed the developments as a sign that both sides wanted to resolve their months-long dispute. The Shanghai Composite Index rose 2.6% to 2,654.80, while the Shenzhen Composite Index jumped 3.3% 1,381.55. Hong Kong’s Hang Seng Index climbed 2.6% to end the day at 27,182.04.
Analysts said the pause in tariffs had been expected and viewed it as a positive move for regional equities, which have been battered this year in part because of the ongoing trade conflict.
“The agreement between the U.S. and China to not raise tariff for 90 days while negotiation continues is broadly in line with our expectation, and should be a positive for Asian markets,” Tai Hui, chief market strategist for Asia-Pacific at J.P. Morgan Asset Management, said in a statement. “That said, the negotiation is likely to remain challenging given the competition in a number of areas, especially technological development between the two countries,” he said, noting that 90 days does not offer much time for the two countries to resolve their differences.
“The good news is that this truce should be seen as Washington recognizing the potential damage on the U.S. economy if tariffs escalate further,” Hui said. “We see an ongoing dialogue between the two sides to be an important catalyst for Asian markets to recover lost ground this year.”
Analysts at CLSA noted that some sectors that had been hard hit by the trade war could see a rebound, including electronics, electronic equipment, autos and computers. Lenovo Group, Hangzhou Hikvision Digital Technology, Guangzhou Automobile Group and BYD could all stand to gain if the tariffs are put on hold, the analysts said in a report on Friday.
They also said that the “financial sector could also gain from overall sentiment improvement.”
On Monday, shares of Lenovo rose 2.1% and Guangzhou Auto climbed 3.1% in Hong Kong trading, while Hikvision soared 7.7% in Shenzhen. BYD bucked the trend, closing 1.6% lower in Shenzhen.
The rally spread to other markets in Asia.
Japan’s Nikkei 225 index gained 1.0% on Monday to 22,574.76, the highest level in about six weeks. The index marked its seventh straight session of gains. Shares of Toyota Motor rose 3.4%, and broad gains were also seen in the manufacturing and shipping sectors.
“For now, markets are cheering that the U.S. and China avoided a worst-case scenario,” said Chihiro Ota of SMBC Nikko Securities.
The gains came despite the Japanese yen trading nearly flat against the dollar, at around 113.5 yen, bucking the conventional trend of a falling yen boosting export-related stocks.
In Seoul, the Kospi rose 1.7% to close at 2,131.93, with Samsung Electronics, the largest blue-chip, jumping 3.3% and Posco, South Korea’s No. 1 steelmaker, soaring 4.9%.
News of the truce was also seen as positive for other asset classes. Kyle DeDionisio, investment director for Asian fixed-income at Fidelity, noted that Asian investment-grade bonds are offering yields that have not been seen since 2009. “This looks like a compelling entry point for investors considering a discrete allocation to Asia,” he said.
Still, some analysts cautioned that the rally might not last, saying that uncertainty could return to the markets if a final trade resolution is not reached. Also, the prospect of a slower Chinese economy and higher U.S. interest rates could weigh on markets.
“I remain skeptical of the durability of the equity rally, since no structural aspect of the U.S.-China rivalry was addressed by the weekend’s pact,” noted Arthur Kroeber of financial research firm Gavekal, saying that trade and security hardliners in Washington will likely continue to go ratchet up pressure on Beijing through investment restrictions, export controls and other measures.
“If trade negotiations — for which no framework has yet been announced — go poorly, it’s possible the threat of tariffs could be revived next year,” he said.