 "Tariffs, tumbling yuan and selloff: Chinese markets brace for volatile Monday as trading reopens after tit-for-tat levies on US")
Investors in China are preparing for a ‘volatile ’ start to the week as markets reopen Monday after an extended holiday with attention turning to Beijing’s retaliation against US tariffs.
On Friday, Chinese stocks listed in the US tumbled 8.9%—the steepest decline since October 2022—amid a broader market selloff triggered by China’s announcement of 34% tariffs on all US imports. The drop came as markets in mainland China and Hong Kong were closed for holidays and are set to resume trading on Monday.
A fall of similar magnitude in the local shares could put multiple Chinese equity gauges — such as this year’s top major global performer, the Hang Seng China Enterprises Index — into a technical correction and in some cases, close to a bear market. That would end a nascent recovery in the country’s assets unless mainland-based investors and bargain seekers step in to cap the slide.
So far this year, Chinese stocks have shown resilience despite rising trade tensions. That’s been driven by optimism about the country’s advancements in artificial intelligence and bets that external pressure will prompt policymakers to increase economic support. The MSCI China Index has risen 13% year-to-date, compared to an almost 14% drop in the S&P 500 Index.
However, Goldman Sachs Group Inc. trimmed its 12-month targets for Chinese equity indexes in a report on Sunday. The MSCI China Index target was cut to 81 from 85, while the CSI 300 Index outlook was lowered to 4,500 from 4,700 over the same time frame, analysts including Kinger Lau told Bloomberg.
Impact Shorts
More Shorts“The bull run will slow on event risks and profit-taking pressures,” the analysts said. “The market may test our risk-case valuations in the short term until trade and policy clarity emerges, and/or a new tariff equilibrium is reached.
The yuan will also be in focus as analysts have long been saying Beijing may weaken the currency to boost exports and blunt the impact of higher US tariffs. The yuan slid to the weakest level since February in onshore trading following Trump’s tariff announcement.
Trump says China ‘Played it wrong’
China on Friday announced commensurate levies on all American goods and export controls on rare earths, prompting the US president to deride Beijing’s reaction as the “wrong” move. A Weibo account affiliated with state-run China Central Television later said the nation is ready to “fight till the end.”
Trump goaded China, saying the US rival had “panicked” after it announced counter-tariffs in response to his global trade war.
“China played it wrong, they panicked – the one thing they cannot afford to do!” Trump posted on Truth Social, writing the entire message in his trademark all-caps.
On Saturday, the state-owned Xinhua News Agency reported Beijing will continue to take “resolute measures” to defend its economy and safeguard its sovereignty, security and other interests.
Meanwhile, traders have begun pricing in what increasingly looks like a negative-feedback loop. Trump showed little sign of backing down even as $5.4 trillion was wiped off the market value of the S&P 500 Index in two sessions — the worst meltdown since the pandemic hit the US in 2020.
China’s response also starkly contrasts with other Asian nations’ efforts to accommodate Trump’s demands rather than make counter moves. Vietnam, Cambodia and Indonesia have said in recent days that they’re open to negotiations, while Singapore said it didn’t plan to strike back. India is working toward a possible bilateral trade deal to dampen the blow.
Global economy teeters on brink
Driven by China’s decision to respond to Trump’s tariff offensive with sweeping new levies on American goods, Global markets faced further turmoil on Friday as equities and oil prices continued their steep decline.
Beijing announced a 34 percent tariff on all U.S. imports, becoming the first major country to reveal direct countermeasures against Washington’s trade actions. The move intensified fears of a deepening global trade war.
Despite the escalating market volatility, Trump stood firm, declaring that his policies would remain unchanged. He also renewed calls for the U.S. Federal Reserve to lower interest rates.
On Wall Street, the selloff accelerated. The S&P 500 dropped by 6 percent, while the tech-heavy Nasdaq officially entered bear market territory after falling more than 20 percent from its recent peak.“We’ve essentially got an escalating trade war,” said Jack Ablin of Cresset Capital. “We’re at the beginning of a global slowdown if these tariffs remain in place.”
The losses increased somewhat following remarks from Federal Reserve Chair Jerome Powell on Friday, who warned of the risk of higher unemployment and higher inflation due to tariff increases he characterised as “significantly larger than expected.”
Wall Street investors shrugged off data showing the US economy added 228,000 jobs last month, much higher than analysts expected.
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