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The Hang Seng and Shanghai composite rose 4.21% and 2.70%, capping for a strong week. The surge is due to reports that US President Donald Trump is looking to reach an agreement with China’s President Xi Jinping about their trade dispute. We believe dealmaker Trump has over-played his hand. He has threatened tariffs on the balance of China’s USD 500 billion-plus exports to the USA and so painted himself in the corner. By executing the full tariff, he will have no more firepower to negotiate: any dealmaker knows this position is unacceptable. The high probability is that Trump and Xi will reach an agreement at the Argentina G20 Summit in late November. This will suit both presidents’ need for showmanship.
Given this expectation, we are positive on Chinese assets. Just a glimpse of a US-China trade agreement has driven traders back into BRL, ZAR, TRY and INR high beta/high rerate correlated currencies. The rapid returns based only on media headlines indicates how critical this issue has become.