On Thursday, following Donald Trump’s tweet detailing a “very good” phone call with Xi Jinping on trade, investors sent the iShares MSCI China ETF and the iShares China Large-Cap ETF surging the most in more than three years.
On Friday, that optimism was mirrored in Hong Kong shares after reports indicated the Trump administration is working on a draft plan for a trade truce with Beijing.
To say Asian shares closed the week on a positive note would be to grossly understate the case. The Hang Seng surged a truly laughable 4.2% on Friday, its best day since 2011.
This was the best week for the index since 2015. H-shares had their best day since early 2016, but remain in a bear market. Don’t forget that the Hang Seng China Enterprise Index was a veritable world-beater to start 2018, staging a truly incredible 19-session win streak before the bottom fell out.
On the mainland, the Shanghai Composite rallied some 2.7% on the session. This was the fourth day of gains, marking what looks to me like the best win streak since February.
This week’s gains in mainland equities come amid ongoing hints from Beijing that more stimulus is in the cards. Things have calmed down a bit on the mainland, but realized vol. is still above February levels, a reflection of how turbulent things have been of late as October’s selloff on Wall Street conspired with already dire sentiment around Chinese equities to catalyze wild swings.
Friday’s good mood was evident in South Korean shares as well. This was the best day for the Kospi in nearly seven years – and yes, I’m serious.
Do keep in mind that Friday’s monumental rally in Asia came during a week that saw myriad signs of economic deceleration. China’s PMI data continued to suggest the world’s second-most important economy is decelerating more rapidly than policymakers would like, while South Korea showed a pretty egregious slide in industrial output for September. And that’s to say nothing of a decline in Japan’s factory output and a lower-than-expected read on Taiwan’s Q3 GDP (+2.2% YoY versus expectations of +2.5%).
The question, then, would appear to be whether any trade truce between the U.S. and China will be too little, too late to avert a synchronized global slowdown.