SHANGHAI (Reuters) - Stock markets rallied in China and Hong Kong on Thursday and the Chinese yuan firmed after the Trump administration invited Beijing to restart trade talks, offering some hope the two sides could pull back from the brink of a full-blown trade war.
The benchmark Shanghai Composite index .SSEC ended 1.1 percent higher at 2,686.58 points after closing at its lowest level since January 2016 on Wednesday.
The blue-chip CSI300 index .CSI300 also ended 1.1 percent higher, with a sub-index tracking securities firms gaining 1.4 percent, real estate rising 0.8 percent and industrials ending up 1 percent.
“The trade war has been a hot topic in the market all year long. The lack of clarity has been a major influence on the A-share market and to have a good signal at this low point certainly has an effect,” said Li Zheming, an analyst at Datong Securities in Dalian.
The CSI300 healthcare sub-index .CSI300HC, which had earlier fallen as much as 5 percent and weighed on the broader index, trimmed losses to end 1.8 percent lower.
In Hong Kong, the Hang Seng index .HSI posted its strongest daily gain since May 25, 2016, leaping 2.5 percent to 27,014.49.
The top gainers among H-shares were China Resources Land Ltd (1109.HK), which ended 7.16 percent higher, followed by ZhongAn Online P & C Insurance Co Ltd (6060.HK), gaining 6.93 percent and Haitong Securities Co Ltd (6837.HK), up by 5.69 percent.
Hong Kong’s market also got a boost from strong gains in index heavyweight Tencent Holdings (0700.HK), which ended 5 percent higher after Tencent-backed Chinese online food delivery-to-ticketing services firm Meituan Dianping (3690.HK) raised $4.2 billion in the world’s biggest internet-focused IPO in four years, according to people close to the deal.
But most market attention was focused on trade after the White House’s top economic adviser said on Wednesday that the Trump administration had invited Chinese officials to restart trade talks, even as Washington prepares to escalate the U.S.-China trade war with tariffs on $200 billion worth of Chinese goods.
China said it welcomed the U.S. invitation but it was unclear when the discussions would be held.
News of the potential talks supported the yuan CNY=CFXS and pressured the dollar, though few market watchers were optimistic of a breakthrough after several earlier meetings made little headway. The White House had quickly backed away after an apparent framework deal was agreed in May. [FRX/]
“While we agree this should provide short term relief, the road ahead can still be tricky,” Tai Hui, chief market strategist for JP Morgan Asset Management, said in a morning note.
“China did provide concessions earlier in the year to buy more U.S. products and reduce the bilateral deficit as well as opening up markets to foreign companies. If this did not satisfy the US six months ago, China may not be able to offer much more than that, especially if this involves adjusting its Made in China 2025 policy.”
But a trader at a Chinese bank said market sentiment had improved following the latest developments, particularly as the proposed meeting was set to be between higher-level officials, giving the market hope that the talks could yield a breakthrough.
Prior to the market opening on Thursday, the People's Bank of China (PBOC) set the midpoint of the currency's daily trading band CNY=PBOC at 6.8488 per dollar.
That was 58 pips firmer than the previous fix of 6.8546, and largely in line with market forecasts following a fall in the dollar overnight, traders said.
Supported by the stronger fixing, the onshore yuan CNY=CFXS opened at 6.8327 per dollar, its strongest level since Sept. 7. At the close of the onshore trading session at 0830 GMT, it was changing hands at 6.8487 per dollar.
“Admittedly, the RMB market will likely remain highly uncertain in the rest of this year, depending on how the China-U.S. trade war unfolds,” Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong said in a note.
He said the yuan would be unlikely to fall below 7 per dollar “given (the) PBOC’s clear stance to defend the RMB.”
The offshore yuan CNH=D3, which is more freely traded, booked its best day in 2-1/2 weeks on Wednesday, with strong gains in the U.S. session after the trade talks news emerged.
On Thursday, it was trading at 6.8470 at 0830 GMT, firmer than its onshore counterpart.
Reporting by Winni Zhou and Andrew Galbraith; Editing by Kim Coghill & Shri Navaratnam