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Chinese Markets Enjoy a Rare Surge After Trump-Xi Meeting

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12/03/2018 | 05:11am EDT

By Shen Hong

China's stocks and currency rallied on the trade truce between Washington and Beijing, led by shares in companies expected to benefit from an easing of tensions, such as telecom equipment makers and a major pork producer.

But analysts cautioned that the strong performance could soon run out of steam given the lingering uncertainties in trade relations between the world's two largest economies, as well as concerns about the health of China's economy.

The benchmark Shanghai Composite Index rose 2.6% Monday, while its smaller but tech-heavy Shenzhen counterpart was up 3.3%. The Nasdaq-style ChiNext startup board in Shenzhen also rallied 3.3%.

China's currency enjoyed a rebound following months of steady depreciation against the dollar. The greenback is now down 0.9% against the yuan, reaching 6.8852 in the freely traded offshore markets.

"The news from Buenos Aires on the trade truce and Beijing's lighter grip on index futures definitely offered a shot in the arm to a market depressed for quite a long time," said Deng Wenyuan, an analyst at Soochow Securities, referring to the summit on Saturday between President Trump and Chinese leader Xi Jinping on the sidelines of the Group of 20 meetings in Buenos Aires.

The latest deal between the two sides offers Beijing a reprieve from a scheduled increase in tariffs on $200 billion in Chinese exports to the U.S. to 25% from 10%, which had been scheduled for Jan. 1. The postponement gives both sides 90 days for further talks on a range of bilateral issues, such as intellectual-property protection.

Major Chinese telecom equipment makers, led by ZTE Corp., were among the biggest gainers Monday on hopes the talks would lead to an easing of U.S. sanctions against such companies.

China's main Shanghai market is still down 20% this year, making it the world's worst-performing major stock index. The bulk of its losses have come since April, when the U.S. government imposed a ban on U.S. firms selling components to ZTE on concerns about national security.

ZTE's Shenzhen-listed shares surged 7.9%, while its Hong Kong listing jumped 8.8%. The telecoms subindex of the benchmark CSI 300 index, which captures the largest stocks listed in Shanghai and Shenzhen, was up 4.9%.

Another market highflier was WH Group Ltd., the world's largest pork producer based in central China's Henan province and the owner of U.S. producer Smithfield Foods. The company's Hong Kong-listed shares rose 12%, on hopes that Chinese imports of U.S. pork will increase as part of Beijing's commitment to import more American agricultural products.

Further aiding the mood was an announcement on Sunday from the China Financial Futures Exchange that effective Monday, it will further relax index futures trading rules, reducing margin requirements and cutting trade fees.

In a statement, the exchange said it would lower the margin ratio for the key CSI 300 index futures to 10% from 15%. China imposed tight trading curbs on index futures after an unprecedented stock market meltdown in the summer of 2015, before gradually starting to loosen its grip last year.

Following the move, some of the country's major futures-trading houses and securities firms that own futures-dealing arms registered sharp gains.

Minmetals Capital Co., a futures-trading firm based in Hunan province, saw its Shanghai-listed shares rise 7.3%, while Everbright Securities Co. increased 5.5%.

"The decision to encourage more stock index futures trading now is sending a message to people that the authorities think the markets have fallen more than enough and it's time to get in," said Wu Yunfeng, a Shanghai-based retail investor.

But Mr. Wu said he is in no rush because of lingering pessimism about the outlook for China's economy, even without the trade friction with the U.S.

"Recent signs of further economic reforms, such as plans to cut taxes and stronger support for the private sector, were triggered by trade war-induced pressure. How genuinely and effectively they will be implemented remains to be seen," Mr. Wu said.

Some analysts shared such a cautious view, citing the tentative nature of the latest truce between the U.S. and China.

"There are still uncertainties going forward, including President Trump's daily tweets," said Mr. Deng.

Write to Shen Hong at hong.shen@wsj.com

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