The prospect of a revived trade dispute between Washington and Beijing is threatening to undermine this year’s blistering rally in Chinese stocks and weigh on the yuan.
Global equities took a hit on Friday after US President Donald Trump said he would impose a “massive” increase of tariffs on Chinese goods.
He later said he would put an additional 100 percent tariff on China from Nov. 1, as well as place export controls on critical software.
Photo: Bloomberg
His reaction came after Beijing unveiled curbs on the export of rare earths earlier in the week.
A gauge of Chinese stocks listed in the US plunged more than 6 percent in its biggest loss since trade tensions escalated in April. US equities also tumbled, with the Dow Jones Industrial Average sliding 1.90 percent and the tech-heavy NASDAQ index shedding 3.56 percent on Friday.
“China’s markets will likely open under pressure Monday,” Karobaar Capital LP chief investment officer Haris Khurshid said. “The tariff headline and new tech restrictions will spook sentiment right out of the gate.”
A lasting deterioration of ties between the two largest economies could imperil one of the world’s best performing stock markets this year, as well as renew doubt over China’s investability, while any sustained weakness in the yuan is typically negative for Asian currencies, because the yuan has long been seen as an anchor for the region. On Friday, the Australian dollar, a so-called China proxy, sank 1.3 percent.
Whether the truce holds or collapses remains unknown, but the uncertainty might limit the impact on Chinese equities, Guotai Junan Hong Kong Ltd (國泰君安證券) chief economist Hao Zhou (周浩) said.
“I expect China’s markets to fall initially and then rebound with caution,” he said. “There are lot of questions left unanswered.”
Regardless of the risks posed by tougher talk between Washington and Beijing, Chinese equities were already looking overheated, Oberweis Asset Management Inc portfolio manager Barry Wang said.
The MSCI China Index of stocks capped its fifth month of gains last month, its longest winning streak since 2018.
“The China rally this year has run too far,” Wang said. “It might take a pause for fundamentals to catch up.”
In Taiwan, the TAIEX could also be under pressure when the main board resumes trading today after the Double Ten National Day holiday weekend, as the American depositary receipts of contract chipmaker Taiwan Semiconductor Manufacturing Co (台積電) tumbled 6.41 percent on Friday, even though the National Stabilization Fund remains in place, analysts said.
The Ministry of Finance on Thursday said the NT$500 billion (US$16.37 billion) fund would continue to intervene in the local stock market despite a significant rebound since it first entered the market in early April, citing uncertainties stemming from US tariff policies.
Additional reporting by CNA
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