China stocks flat, Hong Kong retreats as tariff optimism fades
HONG KONG: China stocks were flat on Tuesday, while Hong Kong shares pulled back, as initial euphoria over a US-China trade agreement to delay and slash tariffs gave way to growing caution over the lengthy negotiations ahead.
The deal inked between US and Chinese officials after weekend talks in Geneva surpassed market expectations and led to a strong rally in global markets and the dollar overnight.
However, fears that further negotiations could prove a long slog still linger and weighed on investor sentiment. China's blue-chip CSI 300 Index gained less than 0.1% and the Shanghai Composite Index added 0.2% in early morning trade.
In Hong Kong, the Hang Seng China Enterprises Index lost 1.1%, while the benchmark Hang Seng Index weakened 1% to retreat from a six-week high.
'It might be just the beginning of the inevitable collision of the two largest economies. After enjoying a rebound, markets perhaps need to ponder the medium to long term risk,' Ting Lu, chief China economist at Nomura, said in a note.
US Treasury Secretary Scott Bessent, speaking after talks with Chinese officials in Geneva, said on Monday the two sides had agreed on a 90-day pause on their tit-for-tat measures.
The US will cut extra tariffs it imposed in April on Chinese imports to 30% from 145% and Chinese duties on US imports will fall to 10% from 125%, the two sides said on Monday.
The consumer electronics sector added 0.3% on tariff relief.
The energy sector advanced 0.8% and the banking sub-index climbed 0.7%, leading onshore markets higher.
The strategically important rare-earths sector, which was not mentioned in the trade talks, slipped 0.4%.
Chinese stock rally on US-China trade deal
Still, China stocks have fully recovered from the sharp sell-off last month, which was triggered by US President Donald Trump's punitive tariff measures on 'Liberation Day'.
The blue-chip CSI300 Index is now trading 0.3% above its April 2 level - the day Trump announced reciprocal tariffs.
'We have been adding to China over the past months on the view that in the long term the current level of tariffs would be significantly reduced,' said Kamil Dimmich, partner and portfolio manager at North of South Capital EM fund.
'Markets have been fairly quick to price in the anticipated 'normalization', so we are no longer in a rush to add but remain happy with our exposures in China.
Most likely there will be further ups and downs over the coming weeks and months so there may be better times to add.'
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