UPDATE 4-Chinese stocks fall as Trump-Xi trade deal yields few surprises

Chinese shares pulled back from a decade high on Thursday as U.S. President Donald Trump and Chinese President Xi Jinping concluded their high-stakes meeting in South Korea that has fuelled cautious optimism for a potential trade-war truce. Investors appeared heartened by signs of cooling tensions between the world's top two economies after recent escalations, while also positioning defensively with a sense of deja vu that the real deal may offer far less to celebrate.

Previous trade negotiations have seen promising starts followed by setbacks. After a near two-hour meeting with Xi, Trump said he had struck a deal to trim tariffs on China in exchange for Beijing resuming U.S. soybean purchases, keeping rare earths exports flowing and cracking down on the illicit trade of fentanyl.

The immediate market reaction was choppy with traders trying to make sense of the information released so far and awaiting further details. China's yuan retreated from a near one-year high against the dollar after the meeting. China has yet to release any details of the talks.

The benchmark Shanghai Composite Index hit its highest level since 2015 in early trading but later weakened as much as 0.8%. Hong Kong's Hang Seng Index fell 0.2%. China's CSI Rare Earth Industry Index rose more than 2% after the leaders' meeting, while defensive plays such as liquor and banking pared earlier gains. The AI sector index was down nearly 2%.

"The response from markets has been cautious in contrast to Trump's enthusiastic characterisation of the meeting with Xi as 'a 12 out of 10'," said Besa Deda, chief economist at advisory firm William Buck in Sydney. "There are still some structural issues that have been left unresolved, which could be contributing to the market's response and takes some shine off the truce."

BULLISH MOMENTUM AT STAKE The stakes are particularly high given the breadth of this year's rally across Chinese markets.

The Shanghai benchmark has surged nearly 20% this year, overturning the "uninvestable" narrative that had dominated global investor sentiment toward Chinese markets in recent years. Hong Kong's Hang Seng has climbed over 30%, ranking it among the best performing markets globally.

"Managing to meet and de-escalate after recent tensions will help remove a major uncertainty, lowering the immediate risks to end the year," said Lynn Song, chief economist for Greater China at ING. Despite U.S. tariffs, Chinese exports to other parts of the world have remained resilient, while progress in China's adoption of artificial intelligence and its development of semiconductors and innovative drugs this year has also given comfort to global investors.

Asian and global emerging markets funds made significant increases in their exposure to mainland China in September, HSBC said in a note on Monday, pointing out positioning in mainland China for Asia funds that HSBC tracks is near a 5-year high. TACTICAL PAUSE LEAVES MARKETS CHOPPY

The latest tit-for-tat escalations erupted earlier this month as Trump unveiled additional levies of 100% on China's U.S.-bound exports by November 1, in a reprisal against China curbing its critical rare earth exports. The meeting on Thursday looked like an attempt to reset the U.S.-China narrative by reopening selective trade channels to restore confidence, rather than a fundamental reset of geopolitical relations, analysts say.

"It's hard to call this a clean risk-on," said Charu Chanana, chief investment strategist at Saxo in Singapore. "Equity traders have seen this playbook before — upbeat tone, little follow-through." There are plenty of gaps still left, though, in the Trump-Xi headlines with no timeline on rare earths, soybeans not a huge win if China's crushers don't need imports, and no mention of Nvidia's Blackwell chips, she added.

Partial tariff rollbacks may also do little to help loss-making Chinese exporters and manufacturers, or reverse weak consumer demand at home. "Overall, this looks like a tactical pause rather than a strategic breakthrough," said Tareck Horchani, head of prime brokerage dealing at Maybank Securities.