Shanghai Composite Rises on Trade Deal Optimism

Both the Shanghai Composite Index (SHCOMP) and the Hang Seng Index (HSI) closed with gains today. Also, Asian markets were in the green from the recent momentum. Optimism over a US-China trade deal helped lift sentiments. Futures point to a strong opening in US markets as well.

Shanghai Composite gained despite Hong Kong protests

The Shanghai Composite Index gained 0.58% today to close at $2,975. The Hang Seng Index surged 1.6% to $27,547. Notably, the Hang Seng has been weak amid the Hong Kong protests. The protests have taken a toll on the region’s economy.

However, optimism over phase one of the US-China trade deal lifted Chinese stock markets. Also, some of the recent economic data points are encouraging. Data released last week showed a spike in China’s October manufacturing PMI. Also, in the US, Q3 GDP and October non-farm payroll data were better than expected.

Hang Seng gained despite Huawei ban

The Shanghai Composite Index is up 18.6% year-to-date while the Hang Seng Index gained only 4.9%. The Hang Seng Index has been under some pressure this year. However, optimism over a US-China trade deal helped buoy sentiments. Some of the recent reports suggest that the world’s two largest economies might get closer to the trade deal. Per a CNBC report, Commerce Secretary Wilbur Ross said that the US will “very shortly” start issuing licenses to US companies to do business with Huawei.

Huawei has been a major flashpoint in US-China relations. Apart from restricting US companies’ ability to transact with Huawei, the Trump administration asked some of the allies to deny Huawei from their 5G infrastructure. However, not all allies have obliged the US on Huawei.

Trade deal on the horizon

Meanwhile, optimism over a US-China phase one deal could lift the Shanghai Composite Index and Hang Seng. Also, the Dow Jones Industrial Average and S&P 500 futures point to a higher opening. Notably, the Shanghai Composite Index, as well as the Dow Jones Index, have come under pressure whenever we’ve seen an escalation in the US-China trade war. No wonder businesses in both countries want to see the US-China trade conflict resolved.

Looking at Chinese ADRs (American depositary receipt), Alibaba (BABA) and JD.com (JD) respectively gained 28.7% and 50.5%. Also, the iShares China Large-Cap ETF (FXI) is up 8.5% so far in 2019.