Shanghai/Hong Kong — Chinese and Hong Kong stocks posted gains Wednesday following reports of an imminent ceasefire between Israel and Iran, providing some relief for investors while hopes for an earlier than anticipated U.S. Federal Reserve rate cut provided further impetus.
Shanghai Composite and CSI 300 indexes both rose by 0.28% to 3,430.16 by midday; blue-chip stocks led the gains for both indexes in Shanghai, with defense-related stocks particularly leading the gains on both indices. Meanwhile in Hong Kong’s Hang Seng Index advanced 0.77% to 24,362.73, led by real estate and technology sectors while its China Enterprises Index also saw gains of 0.68%.
Analysts believed the rally reflected a broader change in risk sentiment driven by more stable geopolitical conditions and decreasing crude oil prices. Brent crude saw its price slip nearly 7 percent to around $67 a barrel after initially surging after news of ceasefires reduced inflation pressures, encouraging central banks to consider monetary easing measures.
“Markets appear unmoved by a limited Iran-Israel ceasefire as their real concern was for a more significant conflict threatening the Strait of Hormuz,” according to Kyle Rodda, senior analyst at Capital.com. With oil prices declining and U.S. Treasury yields softening–especially 2-year yields–supporting equity prices while giving the Federal Reserve room to adapt.
Federal Reserve Chair Jerome Powell recently addressed Congress, warning of how higher tariffs could fuel inflation while also suggesting possible rate cuts may depend on data in summer; further solidifying investor expectations of more dovish policies from the Fed.
Hong Kong experienced an extraordinary boost due to optimism regarding inflows of capital and declining interest rates, leading to impressive gains across Hang Seng Tech and real estate indexes, each up 1-2% on its respective day.
Experts caution, though. The ceasefire remains tenuous with both Israel and Iran reportedly violating it, with markets treating the temporary relief more as temporary than as permanent peace – potentially opening the way to sentiment shifts should tensions resume in the future.
Why This Matters: Geopolitical Relief – Stabilizing relations between Iran and Israel would reduce oil supply concerns.
Macro Policy Shift – Lower inflation pressure has reignited hopes that the Federal Reserve might cut rates as soon as July or September.
Rotation in the Market – Equities tend to gain from market rotation, while riskier assets like oil and the dollar typically lose ground.
Outlook Ahead:
Investors remain on edge. Any instability in the Middle East that threatens critical shipping lanes could quickly reverse any gains. Also, any upcoming U.S. inflation data and Federal Reserve commentary will be closely scrutinized as investors assess if central bankers have indeed become more dovish.