Shanghai/Hong Kong, June 25, 2025 —
Equity markets in Mainland China and Hong Kong climbed modestly on Wednesday, buoyed by a tentative ceasefire between Iran and Israel and speculation of an earlier-than-expected interest rate cut by the U.S. Federal Reserve.
As geopolitical risks eased following successful mediation by U.S. President Donald Trump, global market sentiment showed signs of stabilization. Both Tehran and Tel Aviv signaled an end to their air war after a week of escalating strikes, marking a crucial de-escalation in the Middle East.
Mainland Markets Rise on Improved Sentiment
By midday, the Shanghai Composite Index had gained 0.28% to 3,430.16, while the CSI300 Index — tracking major blue-chip stocks — rose 0.35% to 3,917.59.
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Defence sector stocks led the charge, with the sub-index jumping 3.42%, reflecting investor confidence in China’s military-industrial capabilities amid global instability.
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Conversely, the energy sector fell 2.09%, pressured by declining oil prices, which slid following the Middle East ceasefire. Brent crude had climbed in previous weeks on supply disruption fears.
Investors are also digesting Premier Li Qiang’s reassurances that China’s transition to a consumer-driven growth model is on track. Speaking at an industry conference, Li said he was confident the country could maintain a “relatively rapid growth rate” in the face of global headwinds.
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Hong Kong Stocks Gain on Fed Hopes, Truce Relief
The Hang Seng Index rose 0.77% to 24,362.73, while the Hang Seng China Enterprises Index gained 0.68% to 8,820.35.
Hong Kong equities are particularly sensitive to global liquidity cycles, and the easing of geopolitical tensions combined with hints of dovishness from the U.S. Federal Reserve provided a much-needed boost.
Fed Chair Jerome Powell, in a speech late Tuesday, said that while the Fed is not in a rush to cut interest rates, policymakers are closely watching tariff-related inflation risks and stand ready to act if inflation remains under control.
“While Powell reiterated that the Fed need not rush to cut, he did suggest that the Fed may cut rates sooner rather than later if inflation pressures remain contained,” said analysts at OCBC Bank.
With U.S. rate cuts potentially on the horizon and U.S.-China tariff tensions back in focus, investor interest is shifting to tech, retail, and export-sensitive plays in the Hong Kong market.
Geopolitics, Oil, and Rates: The Trifecta of Market Sentiment
The Middle East ceasefire has calmed volatility across commodity markets, notably oil, where prices had spiked in anticipation of extended hostilities. A stable oil outlook bodes well for Asian importers like China, easing input cost pressures on manufacturers.
Meanwhile, rate-sensitive sectors such as property, consumer finance, and technology in Hong Kong may benefit if the Fed moves to cut rates, potentially before Q4 2025. However, analysts caution that inflationary pressures from Trump-era tariffs may still complicate the timeline.
What to Watch Going Forward
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China’s macro data releases in early July will offer clues on the effectiveness of recent policy support.
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U.S. inflation prints and Fed meeting minutes will be closely monitored for signs of policy pivot.
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Investors will also track developments in China-U.S. trade negotiations, particularly around tariff escalations that could influence inflationary paths on both sides.
Conclusion: Temporary Calm, But Caution Persists
While the Iran-Israel ceasefire and dovish Fed commentary have improved risk appetite, investors remain cautious as global policy direction, energy prices, and geopolitical risks could quickly shift again.
Still, today’s rally in defensive Chinese stocks and interest rate-sensitive Hong Kong equities signals a short-term vote of confidence in regional stability and policy support.
