Hong Kong, China Stocks Slide Amid US-China Trade Truce Uncertainty

Chinese and Hong Kong equities experienced mixed results following a temporary trade truce between the United States and China, which led to an initial rally but was soon tempered by investor caution. The agreement to reduce tariffs for 90 days sparked early optimism, boosting Asian markets and prompting several institutions, including UBS and Morgan Stanley, to upgrade China's economic outlook and GDP growth projections. However, concerns arose over the possibility of less policy support from Beijing, as the truce might reduce the urgency for additional growth stimulus, leading to declines in Hong Kong’s Hang Seng indexes. Chinese defense stocks, which had surged amid the India-Pakistan conflict due to expectations of increased exports, fell sharply after the ceasefire announcement, reflecting a cooling of war-driven demand. Key defense companies like AVIC Chengdu Aircraft and China State Shipbuilding Corporation saw significant stock declines. Overall, while the trade reprieve has improved economic forecasts and sparked a broader market rally, investor sentiment remains cautious due to uncertainties about what will follow the 90-day tariff reduction period.