Why the Hang Seng Index Rallied Over 3% Today

What happened

The benchmark stock index in Hong Kong, the Hang Seng Index, saw strong gains today during trading. The index finished Monday up 771 points at 23,732, or up a robust 3.4%.

Among the leading gainers for the day were some of the hardest-hit names more recently amid the rising US-China tensions.

Property developers Sun Hung Kai Properties Limited (SEHK: 16) and New World Development Company Limited (SEHK: 17) were among the leading winners among the index’s 50 constituent stocks, with gains of 6.1% and 5.6% respectively.

So what

The Hang Seng Index was hammered a few weeks ago on a proposed national security law from Beijing, tensions were high going into last Friday’s threat of US action by President Donald Trump.

However, it turned out to be a “damp squib” in that many market watchers saw aggressive rhetoric but no concrete action plans.

This was taken positively by the Hong Kong market in today’s relief rally as hopes are high that the US administration won’t risk phase 1 of the trade deal with China by taking a hard line on Hong Kong.

Now what

Investors should be watching out for further news from the US government on whether Hong Kong’s special trading status will remain sacrosanct.

As recently as Sunday evening, Secretary of State Mike Pompeo gave an interview claiming that China does not treat Hong Kong differently from any other Chinese city.

Whether a concrete retaliation plan is laid out by the government in the US is yet to be seen but tensions have been ratcheting up in recent weeks with talks of Chinese firms listed in the US going to Hong Kong to carry out a secondary offering of shares.

That has already resulted in JD.com Inc (NASDAQ: JD) and NetEase Inc (NASDAQ: NTES) lining up share sales in Hong Kong. Could other Chinese companies quickly follow suit?