Asia Markets

Hong Kong surges more than 4%, Shanghai up more than 2.5% amid trade talk hopes

Key Points
  • Hong Kong's Hang Seng index surged 4.21 percent by Friday's close following a report that U.S. President Donald Trump has asked officials in his administration to start drafting a potential trade deal with Beijing..
  • Meanwhile, China's Shanghai composite and Shenzhen composite saw gains of more than 2.5 percent apiece.
  • South Korean, Japanese and Australian stocks also ended the trading day higher on the back of the report.
  • Trump had earlier indicated potential progress in U.S.-China trade relations after a call with Chinese President Xi Jinping.

Stock markets in Greater China posted large gains on Friday on the back of comments from U.S. President Donald Trump and a news report that both indicated potential progress in Washington's trade negotiations with Beijing.

Hong Kong's Hang Seng index surged 4.21 percent to close at 26,486.35. while the Shanghai composite gained 2.7 percent to close at around 2,676.48 and the Shenzhen composite advanced 3.428 percent to finish at 1,351.09.

Those markets, which had been higher all day, climbed higher after Bloomberg reported that Trump had asked officials in his administration to start drafting a potential trade deal with China.

Following the release of that article — which cited four unnamed sources familiar with the matter — many big-name stocks in the Hong Kong markets skyrocketed: Tencent surged 9.29 percent, ZTE jumped 12.2 percent and Geely Automobile saw gains of 11.72 percent.

The new report came amid an already buoyant day for the Greater China markets, which inherited a seemingly positive stateside development: Trump tweeted on Thursday that he had a "long and very good conversation" with Chinese President Xi Jinping in part about trade.

The president also said in his U.S. morning tweet that trade "discussions are moving along nicely" and meetings between the two leaders at the upcoming G-20 summit are being scheduled. U.S. stocks rallied in part on that signalling from the president, with all three major stock indexes seeing gains by the closing bell.

Experts have tried to read the trade "smoke signals" coming from the White House, but Rob Carnell, ING's chief economist and head of research for Asia Pacific, questioned the intention behind Trump's move. He told CNBC's "Street Signs" that the timing "feels a little bit too coincidental" given that midterm elections stateside are a few days away.

It is unclear how much progress Trump and Xi made toward breaking an impasse over how they will assuage Trump's grievances with Beijing and move toward reducing tariffs. Talks between the two countries have recently stalled as the White House pushes for an end to intellectual property theft by Chinese companies and a reduction in the U.S. trade deficit with China. Beijing has so far appeared unwilling to make major concessions.

Apple suppliers mostly positive

Shares of Apple suppliers were also in focus on Friday after the U.S. tech giant reported its quarterly results. Although earnings beat estimates, iPhone sales were worse than expected, and after-hours trading of the stock saw declines of more than 7 percent.

Asian suppliers of the Cupertino-based company bounced and mostly saw gains on Friday. Shares of Japanese electronic parts maker TDK recovered to see gains of 2.01 percent, Taiwanese iPhone assembler Hon Hai Precision Industry, also known as Foxconn, rose 1.38 percent on the day and South Korea's LG Display soared 5.76 percent by the closing bell.

Some suppliers, however, declined: Component supplier Murata Manufacturing slipped by 0.5 percent and Taiwan's Pegatron fell 1.07 percent.

Gains in other major Asian markets

South Korea's Kospi jumped 3.53 percent to close at 2,096, with heavyweights Samsung Electronics and SK Hynix seeing gains of 4.74 and 6.3 percent, respectively.

Meanwhile, Japan's rose 2.56 percent to close at 22,243.66 while the Topix index recovered to finish 1.64 percent higher at 1,658.76.

In Australia, the benchmark ASX 200 bounced back to rise 0.14 percent at 5,849.2 by the closing bell, despite the energy sector seeing losses of 1.12 percent and the heavily weighted financial subindex declining by 0.38 percent.

Weakened dollar

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.123 following a steep weakening from levels above 96.9 yesterday.

"The steady rise in the USD over the past fortnight or so has come to an abrupt end over the past 24 hours," Rodrigo Catril, a senior foreign exchange strategist at National Australia Bank, said in a morning note. He attributed the greenback's weakness to a "mix of factors" ranging from news around Brexit and comments from the Bank of England to Trump's comments about his call with Xi.

The Japanese yen was at 112.91 against the dollar after seeing a low of about 113.10 earlier. The Australian dollar (AUD), meanwhile, traded at $0.7237 after Thursday's rally from the $0.708 handle.

"AUD/USD has lifted to a one‑month high above 0.7200 assisted by a combination of the sell‑off in the USD ... a recovery in global equity markets and yesterday's Australian economic data," Richard Grace, chief currency strategist and head of international economics at Commonwealth Bank of Australia, wrote in a note.

— CNBC's Fred Imbert and Jacob Pramuk contributed to this report.

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