Hong Kong Stocks Rally After Trump Holds Fire on Retaliation

(Bloomberg) -- Hong Kong stocks rose, with the benchmark index capping its best day in more than two months, on speculation the U.S. administration won't take extreme steps in response to China's crackdown on the city.

The Hang Seng Index closed 3.4% higher, led by real estate firms, after falling almost 7% last month. Shares on the mainland also climbed, with the CSI 300 Index advancing 2.7%. News that China is halting some U.S. farm imports tempered the optimism late in the day, sending the offshore yuan down 0.2%.

While the U.S. President Donald Trump's speech Friday was heated in rhetoric, it lacked specifics around measures that would directly impact the city. He announced the U.S. would begin the process of stripping some of Hong Kong's privileged trade status without detailing how quickly any changes would take effect and how many exemptions would apply.

“Trump's comments gave no immediate measures on Hong Kong and leave room for negotiations with Beijing,” said Castor Pang, head of research at Core Pacific-Yamaichi International. “Trump's comments have eased investors' concern about the impact of potential sanctions on the Hong Kong economy.”

Traders had increased their hedges at the end of last week due to concern over what Trump might announced in his speech. Short selling volume on Hong Kong's main board climbed to 21% of total turnover Friday, the highest proportion in data going back more than two decades.

Sun Hung Kai Properties Ltd. surged the most since September, adding 6.1% while Swire Pacific Ltd. jumped 6%. Elsewhere, Sino Biopharmaceutical Ltd. rose 6.7%. The MSCI Hong Kong Index rose 4%.

The Hang Seng Index is trading below its price-to-book value, near a record low, after being pummeled by concern over the health of the economy, U.S.-China ties and the city's future as a financial center. The measure's drop in May was the biggest relative to the MSCI All-Country World Index since the Asian financial crisis in 1998.

The offshore yuan last traded at 7.1437 per dollar. Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods including soybeans as Beijing evaluates the ongoing escalation of tensions with the U.S. over Hong Kong, according to people familiar with the situation.