Muted Reaction in China Markets After Trump Signs Hong Kong Bill

(Bloomberg) — China traders were relatively unfazed by U.S. President Donald Trump’s decision to sign a bill into law expressing support for the city’s protesters.

While shares in Hong Kong, including Chinese companies listed in the city, slipped in early trading, the yuan was steady at 7.0282 per dollar and the Shanghai Composite Index fluctuated in a narrow range. Trading volumes on the mainland and in Hong Kong were about 24% lower than the 30-day average.

Even though Trump’s signing could further complicate U.S.-China talks over a trade agreement, Chinese financial assets had already reacted earlier this month when Congress passed the bill. The concern remains on China’s plans to retaliate: while Beijing reiterated its threat to take action on Thursday, it offered no details on how or when this would be done.

“Trump had to sign this bill given the overwhelming support from Congress,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. “It’s just a symbolic move and has no real consequences for markets unless of course China makes a highly unlikely military move into Hong Kong.”

The legislation in support of the protesters requires annual reviews of Hong Kong’s special trade status under American law — and sanctions against any officials deemed responsible for human rights abuses or undermining the city’s autonomy.

China’s foreign ministry had urged Trump to prevent the legislation from becoming law, warning the U.S. not to underestimate China’s determination to defend its “sovereignty, security and development interests.”

China’s financial markets have lacked direction in recent months as investors await the outcome of trade talks. While the CSI 300 Index had a strong first quarter, jumping 29%, it’s mostly moved sideways since. While the yuan traded stronger than the key 7 per dollar for a few days earlier this month, its moves have also been capped since.

Trump said Tuesday that talks with China on the first phase of a trade deal were near completion after negotiators from both sides spoke by phone. The two sides have been wrangling over how to put the deal on paper and what tariffs the U.S. will drop in exchange.

“Regardless of what both sides said, it looks like it’s not easy to strike a consensus, so now even striking a phase one deal could be hard,” said Stephen Chiu, Asia FX and rates analyst at Bloomberg Intelligence.

Contact editor Yang Ge (geyang@caixin.com)