The China-US trade negotiations have reached an important consensus, boosting short-term optimistic sentiment!
On Monday, May 12, the Ministry of Commerce released a joint statement on the China-US Geneva trade talks.。
This high-level economic and trade dialogue between China and the United States has achieved substantial progress, significantly reducing bilateral tariff levels. The U.S. has canceled a total of 91% of the additional tariffs, and China has correspondingly canceled 91% of the counter-tariffs; the U.S. has suspended the implementation of a 24% "reciprocal tariff," and China has also correspondingly suspended the implementation of a 24% counter-tariff.
Stimulated by this news, Hong Kong stocks surged at the end of the trading session, $Hang Seng Index (800000.HK)$ closing up 2.98% and returning above the 23,000-point level. $Hang Seng TECH Index (800700.HK)$ Increased by 5.16%. From the perspective of the Hang Seng TECH Index component stocks, $SUNNY OPTICAL (02382.HK)$ Surged nearly 15%, $BYD ELECTRONIC (00285.HK)$ Increased by nearly 14%, $XPENG-W (09868.HK)$ Increased by over 10%.
The Network Technology stocks, which are of great concern to investors, have also experienced a wave of explosive growth. $BILIBILI-W (09626.HK)$ Up nearly 7%,$JD-SW (09618.HK)$ 、 $KUAISHOU-W (01024.HK)$ 、 $BABA-W (09988.HK)$ Increased by over 6%, $TRIP.COM-S (09961.HK)$ 、 $BIDU-SW (09888.HK)$ Increased by over 5%, $TENCENT (00700.HK)$ Increased by nearly 5%.
In addition, the US stock market is also in celebration. $E-mini NASDAQ 100 Futures(JUN5) (NQmain.US)$ rising over 3%, $E-mini S&P 500 Futures(JUN5) (ESmain.US)$ Increased by over 2%, $E-mini Dow Futures(JUN5) (YMmain.US)$Increased by nearly 2%.
China Concept Stocks soared collectively in pre-market trading. $GDS Holdings (GDS.US)$ 、 $XPeng (XPEV.US)$ Increased by over 8%, $PDD Holdings (PDD.US)$ 、 $Li Auto (LI.US)$ Increased by over 7%, $Alibaba (BABA.US)$ 、 $Kanzhun (BZ.US)$ 、 $Bilibili (BILI.US)$ 、 $NIO Inc (NIO.US)$ Increased by more than 6%.
China asset ETFs surged in pre-market trading. $Direxion Daily FTSE China Bull 3X Shares ETF (YINN.US)$ rising nearly 10%, $Direxion Daily CSI China Internet Index Bull 2x Shares ETF (CWEB.US)$Increased by over 10%.
Growth Tech stocks surged strongly before the market. $Tesla (TSLA.US)$ 、 $Amazon (AMZN.US)$ Increased by nearly 7%, $Meta Platforms (META.US)$ rising nearly 6%, $Apple (AAPL.US)$ Increased by nearly 5%.
How does the market interpret this?
CICC stated regarding China's tax rate:
1) Previously: 165% = 20% (2018) + 145% (20% fentanyl + 34% countervailing duties + 50% + 41%)
2) Currently: 50% = 20% (in 2018) + 30% (20% fentanyl + 10% reciprocal tariffs)
1. The delay and reduction exceeded expectations; the previous expectation was a drop to 80% (Trump stated last week) or 54% (20% fentanyl + 10% reciprocal), but this time it dropped directly to 30% (20% fentanyl + 10% reciprocal, 24% exemptions for 90 days). Therefore, market sentiment has significantly improved, and the Hong Kong stock market surged, especially in export-related sectors such as Consumer Electronics and home appliances. The USD rose sharply, while Gold fell significantly.
2. The delay or adjustment from the previously irrational level, which was almost equivalent to a 'trade embargo,' to a level where 'trade' can occur is likely a necessary reality.
On April 2, the reciprocal tariffs were incrementally raised to an irrational level of 145%, which is almost equivalent to a 'trade embargo,' and both sides may not be able to bear this in the long term.
Tariffs pose a supply shock for the USA and a demand shock for China. Although it can withstand for a while in the short term, there will still be considerable long-term pressure. For the USA, this period is probably around two to three months, because the effects of 'scrambling for exports' and low oil prices mean that the impact of tariffs on inflation and growth won't manifest quickly. Therefore, the second quarter is critical; at least one or two of the following must show progress: tariff negotiations (likely to happen), tax reduction (ideally), and interest rate cuts (unlikely). Otherwise, the market may need to readjust expectations regarding the impact of tariffs.
3. From a market perspective, both the US and Hong Kong stock markets have recovered to levels before the 'reciprocal tariffs' set on April 2, reflecting the repair of risk premiums. Looking ahead, the actual progress of tariff negotiations will be crucial, not only between China and the USA but also regarding whether other markets impose export controls. The short-term delay also signifies a decreased necessity for heavy fiscal stimulus.
In the short term, the market's significant rebound driven by the anticipation of delays is expected. It is recommended to explore flexibility within the export chain and Internet growth; however, the latter is clearer. Overall, it is also important not to completely dismiss all potential risks and fluctuations. The rotation between Internet technology growth and dividends remains a comprehensive strategy. Be more actively involved during downturns, lock in profits moderately during exuberance, and remain focused on structural directional trends.
Is foreign capital back? Morgan Stanley: 80% of investors intend to increase their allocation to China in the short term.
There has been a significant shift in funding attitudes, with foreign capital heavily buying Chinese Stocks.
On May 12, Morgan Stanley's latest research revealed that hedge funds, particularly those in the USA, increased their bullish bets on Chinese Stocks (including purchases of Chinese Stocks listed in the USA and domestic A-shares) last week, due to an optimistic outlook on the progress of China-US trade negotiations.
Notably, the report states that over 80% of investors expressed a likelihood of increasing their exposure to Chinese Stocks in the near future during the recently concluded Morgan Stanley China BEST conference.
The report also noted that the high attendance of AI, Technology, and the XINJINGJI Sector at the Morgan Stanley China BEST conference confirmed Morgan Stanley's view that these Industries are becoming the leading sectors in the next generation of the stock market.
The report says that recent breakthroughs in AI, humanoid robots, electric vehicles, and supply chains have helped global investors regain confidence in the R&D capabilities of Chinese companies and their ability to actively participate in and even lead global Technology competition.
These breakthroughs are attributed to China's unique pool of engineering talent, data availability, a well-developed social network and E-Commerce ecosystem, as well as potential further government support.
Additionally, interestingly, Barstool founder and billionaire Dave Portnoy posted that the stock market will turn into a movie on Monday. He also included three rocket emojis, indicating an upward trend.
Editor/Somer
