Hong Kong stocks "son" said | Finally "TACO"ed!

Ask AI · How does the TACO trading strategy use repeated policy shifts to achieve arbitrage?

Every Daily Economic News reporter: Zeng Zijian    Every Daily Economic News editor: Yuan Dong

Super impressive!

The US and Iran announced a two-week ceasefire. Iran says, “Iran has won.” Trump says, “The US has won.”

No matter who wins, stock traders win today. Global stock markets are boiling, and A-shares are winning too, as are Hong Kong stocks. The worst-performing Hang Seng Tech Index surged by more than 5% at one point today.

Today, the most talked-about keyword is “TACO” trading. So, what exactly is “TACO” trading?

In fact, “TACO” trading has nothing to do with Mexican tacos. It’s an investment strategy that only became popular on Wall Street last year.

The core of “TACO” is “Trump Always Chickens Out.” Translated, it means “Trump always backs down at the last minute.” “TACO” trading is based on Trump’s policy action behavior pattern, forming a set of predictable market-volatility arbitrage strategies.

A complete “TACO” trade usually includes four steps: “Manufacture a crisis—market panic—concede and yield—rebound arbitrage.” The most typical example is in April 2025: Trump sparked a “tariff war,” leading to a global stock market plunge; but a week later, Trump announced a temporary pause, and the market rebounded. Then in May 2025, Trump threatened to impose 50% tariffs on the EU, triggering turmoil, and after a few days he announced it would be delayed, further validating the “TACO” pattern.

And this year’s “TACO” trades are almost identical to the two times last year. At the end of February, the US and Iran opened fire on each other, triggering a sustained drop across global markets, while prices of commodities such as crude oil surged. More than a month later, the US and Iran announced a two-week ceasefire—now it’s finally “TACO.”

The question now is: after “TACO,” when will it be able to recapture what it has lost?

On April 7, 2025, the Hang Seng Index fell 13% in a single day, and the Hang Seng Tech Index dropped 17% in a single day, a record. Then, within a month, the Hang Seng Index recovered what it had lost. Not only did it recover—over the following months, Hong Kong stocks entered the best trading cycle in nearly four years.

As the saying goes, “Short pain is better than long pain.” Last year’s one-day plunge was followed by a relatively quick recovery after “TACO.” But in 2026, the Hang Seng Index fell from its peak on January 29, to forming a preliminary bottom on March 23. The stage decline was also about 13%, the same as the single-day drop on April 7, 2025. However, this time it has been a relatively longer period of drifting lower, which has made everyone feel extremely miserable. Especially with Hang Seng Tech—many people have really come to fear falling. When there is even a slight rebound, they may run for the exits. At the same time, there is still uncertainty about future US-Iran negotiations. Therefore, in my personal view, after “TACO,” getting back to the previous highs may not be so smooth. But no matter what, at this level, it might be a good opportunity in the short term.

Disclaimer: The contents and data in this article are for reference only and do not constitute investment advice. Please verify before using. Any actions taken are at your own risk.

Every Daily Economic News