China Equities Get Boost From Defense, Consumer Stocks

By Sherry Qin and Jiahui Huang

Chinese stocks staged a comeback Wednesday afternoon, gaining ground even as U.S. President Trump's blockbuster tariffs on Chinese goods took effect.

Defense and consumption stocks led the gains as investors started to look past the initial tariff shock, and try to pick winners in sectors that could gain from trade tensions.

Chinese defense stocks rose sharply in Shanghai and Shenzhen, led by shipbuilding, aerospace, aircraft carrier names.

China Shipbuilding Industry added 3.9%, while China Marine Information Electronics gained 10%. Emergency traffic engineering manufacturer China Harzone Industry surged 20% and military weapons maker Jiangxi Guoke Defence Group gained 17%.

Among consumer stocks, duty-free retailer China Tourism Group Duty Free and department store chain Wangfujing Group rose 10% each, reaching the daily limit in Shanghai. Shanghai Bailian Group, whose business ranges from supermarkets to shopping malls, jumped 8.6%.

The gains seem to reflect what some analysts see as a silver lining in the tariffs storm: that the economic hit China faces could prompt Beijing to step up policy support.

Beijing set boosting domestic demand as a top priority during a key policy meeting last month and has since reiterated that it has ample room on both the monetary and fiscal fronts to tackle external headwinds.

Officials have said they are holding policy ammunition in reserve if needed, and "the recent market turmoil and uncertainty would seem to present a good window for this," ING economist Lynn Song said.

Duty-free stores, such as CTG Duty Free, could cash in on a trade war since the price gap between duty-free products and duty-paid products will widen under a scenario of rising trade barriers, Morningstar analyst Jennifer Song said.

Investors are also betting on stronger investment in military defense due to escalating China-U.S. tensions.

"It's not just an economic dispute, but the geopolitical tensions between the U.S. and China are intensifying, especially as the current tariffs surpassed the 100% benchmark," said Dong Chen, chief Asia strategist at Pictet Wealth Management.

The rise in geopolitical risks has piqued investors' interest in Chinese national defense stocks, said Lorraine Tan, Morningstar's director of equity research. "Their revenue stream is expected to remain relatively stable," she added.

The gains in consumer and defense related stocks spilled over to semiconductor companies. China's largest chipmaker, Semiconductor Manufacturing International Corp., rose 6.1% and AI chip designer Cambricon Technologies Corp. added 8.8%.

"More investors are coming around to the idea that, as far as the tariff story goes, we are already in the end game, and further tariff hikes will do little to further substantively alter the economic impact," ING's Song said.

Write to Sherry Qin at sherry.qin@wsj.com and Jiahui Huang at jiahui.huang@wsj.com

Hong Kong stocks surged on Wednesday following news that CK Hutchison Holdings agreed to sell multiple ports and assets on the two banks of the Panama Canal under pressure from the U.S.-China trade war and geopolitical tensions, amid China's National People's Congress annual parliamentary meeting unveiled new economic growth targets.

The Hang Seng Index jumped 2.84%, or 652.44 points, to close at 23,594.21. The Hang Seng China Enterprises Index surged 3.14%, or 262.93 points, to end at 8,630.40.

Chinese Premier Li Qiang's announcement of a projected 5% gross domestic product growth for the year injected a wave of optimism into the market.

Adding to the positive sentiment, Beijing revealed plans to issue 1.3 trillion yuan in ultra-long special treasury bonds. This move is expected to stimulate investment and support infrastructure projects, further contributing to economic expansion.

The Chinese government also outlined other key economic targets, including a 4% deficit-to-GDP ratio, a 5.5% urban unemployment rate, and a 2% consumer price index. These targets collectively aim to maintain stability and promote sustainable growth.

In corporate news, CK Hutchison Holdings agreed to sell all its shares in Hutchison Port Holdings and Hutchison Port Group Holdings to BlackRock. This transfer includes over 43 ports comprising 199 berths in 23 countries and their related resources, as well as 90% interests in Panama Ports. The company's shares surged nearly 22% on the Wednesday close.

Xiaomi closed nearly 7% higher, Tencent and BYD closed over 3% higher, Alibaba Group was nearly 2% up on Wednesday's close while Meituan and Semiconductor Manufacturing International or SMIC closed over 6% higher.

Wangfujing Group partnered with state-owned retailer Wushang Group to operate a duty-free shop in Wuhan, China, according to a Shanghai bourse filing on Friday.

The newly established venture, named Wangfujing Wushang Duty Free Goods Operation, will be responsible for managing the duty-free shop located within the Wuhan International Plaza Shopping Center.

The joint venture has a registered capital of 80 million yuan. Wangfujing Group will be the majority shareholder, contributing 40.8 million yuan for a 51% stake. Wushang Group will invest 39.2 million yuan, securing a 49% ownership in the venture.

Wushang's shares jumped 10% in recent trade, while those of Wangfujing edged up 1%.