Chart of the Day: As the Trade War Goes, So Go China Stocks

The U.S.-China trade war has both worried and encouraged financial markets over the last year and a half. At the height of tensions, investors fretted over growing frictions that were dampening trade and investment, eating into company profits. During truces that were often brief, optimism returned that the world’s two biggest economies could work out their differences and create a healthier, more balanced trade environment for everyone.

Those differences have shown up in stock and currency markets, which rallied late last week first on reports and later on an official announcement of a “phase one” trade deal between the U.S. and China. The deal included pledges to not only roll back some of the many tit-for-tat tariffs that had dampened bilateral trade, but also staved off threatened new levies.

Markets in Shanghai and Shenzhen both gained about 1.8% on Friday, while Hong Kong rose by an even stronger 2.6%. That rally continued into the new week on the Chinese mainland, with Shanghai rising 0.6% and Shenzhen up 1.5%. The latter hit a seven-month high. Hong Kong, which is more reflective of foreign investor sentiment toward China, reversed course and fell 0.7% on Monday after the earlier rally.

Word of a pending trade deal also helped fuel a rally for China’s currency, the yuan, whose onshore rate advanced as much as 1% to 6.9570 per dollar Friday — the most since December last year and the strongest since Aug. 2 on an intraday basis. The following chart tracks the movements of the Shanghai Composite Index since the trade war began, marking major developments and the market’s reactions.

Contact reporter Yang Ge (geyang@caixin.com; twitter: @youngchinabiz)