As Trade Details Emerge, China $7 Trillion Is Next: Taking Stock

(Bloomberg) -- News that the U.S. and China are near a trade deal that could lift most or all American tariffs did little to bring out the animal spirits from Asia stock traders. But when China said “substantial progress” was made, that appeared to do the trick.

The MSCI Asia Pacific Index spiked up around 11:24 a.m. in Hong Kong, with shares in China taking their advances to more than 2.6 percent before the trading break. While the gains eased in the afternoon, the Shanghai Composite Index closed above the 3,000 level for the first time since June.

Chinese stocks have gained $1.1 trillion since the start of February. With their value sitting at $6.78 trillion as of Friday's close, the $7 trillion mark is getting closer.

One sticking point in the negotiations -- intellectual property -- seems to be getting addressed, with a new Chinese foreign-investment law to strengthen its protection.

Trade talks have been a constant focus of investors' minds as the war between the U.S. and China has shown its damage. A pair of ugly factory survey prints from Taiwan and South Korea earlier Monday is just the latest sign of how it's affected not only China, but many export-heavy economies in the region -- meaning that a resolution could be a big win for all.

There's more coming that may influence the mood as Chinese leaders meet in Beijing this week to detail the nation's priorities for the year and goals for the economic expansion. And remember that beginning in May, MSCI Inc. will start the process of increasing exposure in its gauges to the so-called A shares, meaning that China will have a bigger impact on the region's equity benchmark.

Asian markets have already priced in plenty of benefit to the trade negotiation, with the 8.2 percent rally in the MSCI Asia Pacific Index through the first two months of the year being its best beginning since 2012. As Nick Twidale, the chief operating officer at Rakuten Securities Australia Pty, says, “we seem to be in a much better place than a week ago.” And now what the market wants to keep going is details.

“No market ever plateaus and goes and collapses, so there's no immediate retracement in sight,” said Stirling Larkin, chief investment officer with Australian Standfirst Asset Management, said on Bloomberg Television. “What that means by implication is we will see a spike, we will see a rally in equity markets and then possibly a retracement from there. So you stay in mainland equity bourses, you stay in the S&P 500 if you believe there's steam, if not you start pivoting now.”

As Bloomberg Macro Strategist Mark Cudmore notes in Monday's Markets Live question of the day, the MSCI All-Country World Index needs to climb another 8 percent to hit a fresh record. Is a signed trade deal worth that much? We shall see.

Stock-Market Summary

• MSCI Asia Pacific Index up 0.4%
• Japan's Topix index up 0.7%; Nikkei 225 up 1%
• Hong Kong's Hang Seng Index up 0.5%; Hang Seng China Enterprises up 0.6%; Shanghai Composite up 1.1%; CSI 300 up 1.2%
• Taiwan's Taiex index down 0.4%
• South Korea's Kospi index down 0.2%; Kospi 200 down 0.5%
• Australia's S&P/ASX 200 up 0.4%; New Zealand's S&P/NZX 50 up 0.7%
• India's SGX Nifty 50 futures down 1.1%
• Singapore's Straits Times Index up 0.9%; Malaysia's KLCI down 0.4%; Philippine Stock Exchange Index up 0.4%; Jakarta Composite down 0.2%; Thailand's SET down 0.3%; Vietnam's VN Index up 1.5%
• S&P 500 e-mini futures up 0.4% after index closed up 0.7% in last session

--With assistance from Matthew Burgess and David Ingles.

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cecile Vannucci, Divya Balji

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