HONG KONG (June 1): Hong Kong stocks headed for their best day in more than two months, after US President Donald Trump’s response to China for its crackdown on Hong Kong stopped short of fully escalating tensions between the two nations.

The Hang Seng Index was up 3.5% by 2.55pm local time. Real estate firms, which had borne the brunt of selling in recent days, led the rally. Sun Hung Kai Properties Ltd surged the most since September, adding 6.8% while Swire Pacific Ltd jumped 6%. Elsewhere, Sino Biopharmaceutical Ltd rose 6.9%. The MSCI Hong Kong Index rose 4.1%.

While the US president’s speech last Friday was heated in rhetoric, it lacked specifics around measures that would directly impact the city. He announced the US would begin the process of stripping some of Hong Kong’s privileged trade status without detailing how quickly any changes would take effect and how many exemptions would apply.

“Trump’s comments gave no immediate measures on Hong Kong and leave room for negotiations with Beijing,” said Castor Pang, head of research at Core Pacific-Yamaichi International. “Trump’s comments have eased investors’ concern about the impact of potential sanctions on the Hong Kong economy.”

Techtronic Industries Co advanced as much as 8.6% in the morning session, before paring gains to 3.3%. North America contributed to 77.1% of the firm’s revenue in 2019, according to data compiled by Bloomberg. Shenzhou International Group Holdings rose 4.6% while Minth Group was up 2.7%. Both firms had at least 15% of their 2019 revenue from the US or North America.

Traders increased their hedges at the end of last week due to concern over Trump’s speech. Short-selling volume on Hong Kong’s main board climbed to 21% of total turnover last Friday, the highest proportion in data going back more than two decades.

The Hang Seng Index is trading below its price-to-book value, near a record low. It fell almost 7% in May, clocking up the biggest drop relative to the MSCI All-Country World Index since the Asian financial crisis in 1998.

Waves of mainland capital have flooded into equities listed in Hong Kong, especially mega-cap Chinese banks, countering losses sparked by sweeping national security legislation. The stakes are high: A panicked business community could trigger cascading outflows that crash its markets and cause runs on its banks.

The US$4.9 trillion stock market, the world’s fourth largest, is now the most volatile since 2012, according to a measure of historical 100-day swings on the Hang Seng Index.

While Hong Kong’s currency remains supported by tight liquidity conditions that keep its interest rates high versus those on the greenback, there were signs last week that some hedge funds might be changing their positions as the Hong Kong dollar’s 12-month forward points jumped to the highest level since 1999. The guage fell today. The Hong Kong dollar was little changed.

Mainland stocks were also higher. The Shanghai Composite Index rose 2.2%, its highest since March 12. The yuan was poised for its strongest level in almost two weeks, rising 0.3%.