Hong Kong Has Suddenly Turned Into World's Best Stock Market

(Bloomberg) -- Central banks have helped supercharge a rebound in Hong Kong stocks.

The Hang Seng Index jumped 5% this week, beating all other 93 major benchmarks tracked by Bloomberg. That’s its best weekly rally since early November. The Hang Seng Enterprises Index was a close second, adding 4.8%. The Hong Kong dollar strengthened towards the midpoint of its trading band with the greenback, a level it hasn’t breached since September.

Supporting sentiment was the Federal Reserve’s dovish tone and signals from Donald Trump that his administration’s relationship with China is improving. For a city that’s entwined with U.S. monetary policy and China’s slowing economy, next week’s Group of 20 summit could make or break the recovery in Hong Kong stocks. As one of Asia’s largest equity markets, Hong Kong is seen as a barometer of global liquidity expectations and macroeconomic concerns.

G-20 looms

China’s equity market also benefited from the optimistic headlines on trade and efforts to ease liquidity concerns, with the benchmark Shanghai Composite Index rising 4.2% this week. The ChiNext Index continued to recover after slumping into a bear market earlier this month, its 4.8% gain helped by proposals to make so-called backdoor listings easier. Some market-watchers warned of the risks of pricing in too much optimism on trade.

China’s currency traders were caught off guard by President Trump’s more genial tone ahead of next week’s meeting with Chinese counterpart Xi Jinping, snapping up options that bet on yuan strength. Investors are positioning for a wilder ride after the summit: the yuan’s two-week implied volatility surged the most this week since trade tensions escalated last month.

Chart of the week

Investors are piling into China’s consumer sector on speculation company earnings will be sheltered from the fallout of the trade war with the U.S. Read more here.

Catching up

Here’s what else caught our eye:

• China wants to ease firms’ restructuring rules, and stocks like it
• China has global bond rally fomo
• Forget about trade, a dairy war threatens to engulf 2022 Winter Olympics
• China’s garbage stocks are leaping out of the dumpster

--With assistance from Ludi Wang and April Ma.

To contact the reporter on this story: David Watkins in Hong Kong at dwatkins19@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins

©2019 Bloomberg L.P.