Chinese Shares Rebound on Trade Talk Hopes After Holiday Break

The Chinese equity markets reopened with a cautious optimism after the May 1–5 Labour Day holiday, driven by whispers of potential progress in U.S.-China trade talks and targeted policy support for tech sectors. While tech stocks surged on policy tailwinds, broader market gains remained fragile, hamstrung by lingering trade tensions, banking sector woes, and the absence of fresh stimulus.

The Optimism Catalyst: Tech and Trade Talk Buzz
The Hong Kong Hang Seng Index climbed 0.69% on May 6, fueled by investor hopes that stalled U.S.-China tariff negotiations might finally bear fruit. Tech giants like Alibaba (0998.HK) and Baidu (9888.HK) led the charge, with artificial intelligence (AI) and chip stocks rallying after President Xi Jinping’s repeated emphasis on advancing these industries. The Shanghai STAR Market, a hub for tech listings, rose sharply, reflecting policy-driven enthusiasm.

Yet the broader picture was mixed. The Shanghai Composite dipped 0.1%, while the CSI300 index fell 0.2%, underscoring investor skepticism. The divergence highlights a critical divide: optimism in high-growth tech sectors contrasts with caution in traditional industries like real estate and banking, which face collapsing profit margins and sluggish demand.

Sector Spotlight: Winners and Losers
- Tech & AI: Gained momentum as Beijing prioritized innovation. The STAR Market’s 1.5% jump since April 20 reflects investor bets on Xi’s “science and technology self-reliance” push.
- Banking & Property: Suffered steep declines. State-owned lenders like Industrial and Commercial Bank of China (601398.CN) fell over 2%, pressured by shrinking net interest margins amid a slowing economy. Property stocks like China Vanke (000002.SZ) dropped 3%, as no monetary easing signals emerged.
- Ethane Importers: Benefited from a tariff waiver. China Petroleum & Chemical (SNP.N) and Satellite Chemical (SATL.O) surged as the 125% U.S. ethane tariff was scrapped, easing production costs.

Trade War Looms Over Growth Prospects
The U.S.-China trade war continues to cast a shadow. Nomura analysts estimate U.S. tariffs now erode 2.2% of China’s GDP, with April’s manufacturing contraction—marking the fastest decline in 16 months—highlighting the strain. Beijing has pledged support for tariff-hit firms but has yet to unveil concrete measures.

Analysts warn that without bold action, the market’s recent rebound will falter. “The Hang Seng’s 5% drop in April underscores fragility,” said Zheshang Securities’ Wang Daqi. “Without aggressive stimulus or tariff relief, gains are unsustainable.”

Policy Crossroads: Stimulus or Stagnation?
Investors are now awaiting two critical catalysts:
1. Trade Talks: U.S. Treasury Secretary Scott Bessent’s denial of ongoing tariff negotiations has damped hopes, but Beijing insists Washington must lift tariffs to “create space for dialogue.”
2. Monetary Easing: While the People’s Bank of China has refrained from aggressive rate cuts, analysts speculate that targeted support for small businesses and exporters could stabilize sentiment.

Conclusion: A Delicate Balancing Act
The post-holiday rebound in tech and trade-sensitive sectors signals investor willingness to bet on incremental progress. However, the broader market’s 0.1% dip in the Shanghai Composite and the 5% Hang Seng monthly loss in April reveal underlying vulnerabilities.

To sustain momentum, Beijing must either:
- Boost stimulus: A fiscal package targeting infrastructure or consumer spending could offset the 2.2% GDP drag from tariffs.
- Secure trade concessions: A partial tariff rollback, similar to the ethane waiver, would reignite optimism.

Without these, the rally risks fading as banking sector woes and trade tensions persist. Investors should remain cautious, focusing on tech leaders like Alibaba and Baidu while hedging against broader economic risks. The path forward hinges on whether policymakers can turn whispers of progress into tangible relief—a high-stakes gamble in an uncertain landscape.