China stocks rise most in six weeks as traders hold on to hopes of trade deal after Trump softens hawkish tone

Chinese stocks staged a late rally, with the benchmark gauge rising the most in six weeks, as investors held on to hopes of a trade deal despite the planned tariff increases by the US on imports from the Asian nation.

The Shanghai Composite Index climbed 3.1 per cent, or 88.26 points, to 2,939.21 at the close on Friday, while the ChiNext gauge of small-caps in Shenzhen jumped 4.4 per cent. Hong Kong’s Hang Seng Index added 0.8 per cent.

The escalating tension between China and the US dominated market sentiment this week. US President Donald Trump softened his hawkish tone, telling reporters that a deal was still “possible” and had received a “beautiful letter” from his Chinese counterpart Xi Jinping. That led traders to increase their bets on equities, even as the White House moved ahead with its plan to raise tariffs on US$200 billion worth of Chinese goods to 25 per cent from 10 per cent starting Friday.

“Elevated noise constitutes a negotiating tactic on both sides, and that there will be some sort of a resolution,” said Howard Wang, head of Greater China equities at JPMorgan Asset Management in Hong Kong. “No one will benefit from a trade war. In the meantime Chinese and other policymakers around Asia are likely to be more rather than less accommodative.”

Still, the Shanghai Composite remained down 4.5 per cent for the week following a bloodbath on Monday that erased US$486.6 billion in market cap from Chinese equities. The index is down 10 per cent since its high in April.

“As financial markets have mostly priced in this [tariff increase], risky asset classes are likely to trade within a range in the short-term,” said Khiem Do, head of Greater China investments for global markets at Barings. “They are unlikely to trade at much lower levels from last closing prices, because, from a fundamental viewpoint, we believe that the tariff decision, while slightly negative, is unlikely to impact significantly on the mild recovery of the Chinese, US and global economies.”

Liquor distillers, technology and insurance stocks topped the list of gainers on Friday. Wuliangye Yibin rose 8.1 per cent to 99.20 yuan and Sichuan Swellfun rallied 7 per cent to 47.65 yuan. China National Software and Service surged by the 10 per cent daily limit to 50.41 yuan and New China Life Insurance climbed 6.6 per cent to 53.24 yuan.

In Hong Kong, the Hang Seng Index advanced 239.17 points to 28,550.24, trimming a weekly loss to 5.1 per cent. The Hang Seng China Enterprises Index, or the H-share gauge, also rose 0.8 per cent.

Sunny Optical Technology Group and Sino Biopharmaceutical were the biggest gainers, rising at least 5 per cent.