Chinese and Hong Kong markets experienced a notable increase on Tuesday after U.S. President Donald Trump postponed his threat to strike Iran's power grid. This delay provided a temporary boost to investor appetite, despite ongoing caution in the markets following Tehran's denial of any negotiations.
By lunchtime, the CSI 300 index of leading Chinese stocks recorded a rise of 0.7%, while the Shanghai Composite index increased by 1%. The Hang Seng index in Hong Kong also saw a gain of 1.8%.
Details of the Event
Global markets regained some of their previous losses after Trump indicated "productive" talks with senior Iranian figures. However, some gains were reversed after Iran denied any negotiations, increasing uncertainty in the markets.
The performance of local stocks showed a weak correlation with energy prices, as the implied volatility in major Chinese stock indices was lower than levels seen during the escalation of global trade tensions in April 2025. According to Li Ming, a Chinese equity strategist at UBS, the "risk reduction" phase may be nearing its end in the near term.
Background & Context
Chinese and Hong Kong markets faced intense selling on Monday, with major indices dropping by more than 3%, marking their largest decline since the tariff shock imposed by Trump on "Liberation Day" last year. The escalating conflict in the Middle East significantly impacted global markets, leading to a worldwide downturn.
At the same time, local and maritime energy indices fell by 1.1% and 0.5%, respectively, while non-ferrous metal stocks rebounded, recording an increase of 2%. Additionally, materials sector stocks in Hong Kong rose by 4%, reflecting an improvement in market performance.
Impact & Consequences
The Chinese yuan depreciated against the U.S. dollar on Tuesday, as the dollar regained some of its previous losses. This occurred amid traders analyzing conflicting news regarding the war in the Middle East. The yuan had strengthened on Monday after Trump announced the postponement of the plan to strike Iran's power grid for 5 days.
Analysts at MUFG pointed out the need for caution regarding the future trajectory, especially concerning currency and interest rate markets in Asia, due to significant economic disruptions and the potential for actual energy shortages resulting from the closure of the Strait of Hormuz.
Regional Significance
Trump's postponement of threats against Iran may help ease tensions in the region, potentially positively impacting oil markets and energy prices. However, the situation in the Middle East remains unstable, keeping markets in a state of constant vigilance.
In conclusion, markets remain influenced by geopolitical events, with investors anticipating further developments in the coming days.