Global stocks rise as investors shrug off US-China tensions
Hong Kong stocks are on pace for their best day since March
as investors shrug off the Trump administration’s intention to end a special
economic and trading relationship with the Asian financial hub. There are also
signs in the region that China’s economy is continuing to recover from the
worst of the coronavirus pandemic — though activity elsewhere in Asia remains
grim.
Hong Kong’s Hang Seng Index rose more than 3%. It was the
first opportunity investors there had to react to US President Donald Trump’s
announcement last week that Washington would “begin the process of eliminating
policy exemptions that give Hong Kong different and special treatment” from
mainland China.
Trump’s response marked an escalation in tensions between
the United States and China — the President blasted Beijing for approving a
national security law that fundamentally undermines Hong Kong’s autonomy.
Experts have pointed out, though, that Trump stopped short
of taking immediate action. Even if he does follow through, analysts say ending
Hong Kong’s special status will have little immediate impact because the
territory does not export a lot of goods to the United States.
Trump’s comments were “long on criticism of China but short
on action,” wrote Stephen Innes, chief global markets strategist at AxiCorp, in
a research note Monday.
Hong Kong’s financial secretary, Paul Chan, also said that
the US announcement will have limited impact on the city, and reassured
investors that there are no plans to change the local currency’s peg to the US
dollar. Since 2005, the Hong Kong dollar has been allowed to trade between 7.75
and 7.85 to the US dollar.
“Hong Kong’s foreign exchange reserves are quite ample, with
assets exceeding $440 billion … providing the strongest support for the Hong
Kong dollar,” Chan wrote in a blog post on Sunday.
Other major indexes in Asia were also higher Monday. South
Korea’s Kospi rose nearly 1.8%, Japan’s Nikkei 225 climbed 0.8% and China’s
Shanghai Composite Index was up 2.2%. Stocks in Europe opened higher, with
London’s FTSE 100 and Paris’ CAC 40 both gaining roughly 1.5%.
US stock futures were muted despite continued protests in
cities across the country over police brutality. Dow futures were up 0.5%,
while Nasdaq and S&P 500 futures posted smaller gains.
“Re-opening optimism reigns supreme,” Innes wrote.
China’s recovery
Fresh data out of China indicates factories there are
starting to recover from the pandemic.
Manufacturing activity in the country unexpectedly rose last
month, according to a closely watched private survey. The media group Caixin
said on Monday that China’s manufacturing purchasing managers index increased
to 50.7 in May, up from April’s 49.4. It also beat the 49.6 that analysts
polled by Refinitiv had expected. A number above the 50-point level indicates
growth.
“Manufacturing production recovered faster than demand as
the domestic economy recovered from the epidemic,” wrote Wang Zhe, senior
economist at Caixin Insight Group, in a statement that accompanied the Caixin
data. Wang added, however, that exports remain sluggish as the rest of the
world continues to grapple with the virus.
Over the weekend, the Chinese government also reported that
its official manufacturing PMI grew in May. The official non-manufacturing PMI
survey, which measures the services sector, also indicated expansion — another
suggestion that domestic economic activity is recovering, according to Jeffrey
Halley, senior market analyst for Asia Pacific at Oanda.
South Korea and Taiwan, though, saw manufacturing production
shrink in May. And while output in the Philippines, Vietnam, Malaysia and
Thailand improved as lockdowns eased, PMIs for those Southeast Asian countries
still indicated contraction instead of growth, according to Alex Holmes, Asia
economist for Capital Economics.
“The bigger picture remains the same — the region’s
manufacturing sector is in a deep recession,” Holmes wrote in a note on Monday.
“Output is still likely to be well below normal levels for many months to come
as domestic and global demand remain very depressed.”
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