The prospect of a revived trade war between China and the US threatens to dampen this year’s strong rally in Chinese equities and put pressure on the yuan. Global markets reacted sharply after US President Donald Trump announced plans for a 100% tariff on Chinese goods starting November 1 and export restrictions on critical software, following Beijing’s curbs on rare earth exports.
Chinese stocks listed in the US fell over 6%, marking the largest drop since April, while American equities, including Nvidia, tumbled. Emerging market currencies also weakened in response.
Hong Kong’s Hang Seng Index had surged 31% in 2025, driven by optimism over artificial intelligence and a temporary trade truce with the US. Key stocks like Alibaba and Tencent gained more than 100% and 60% respectively this year.
Experts suggest that China’s markets may initially drop on the tariff headlines but could rebound with caution, depending on negotiations. The upcoming Trump-Xi summit and internal Chinese Communist Party meetings on Oct. 20-23 will be critical in shaping market sentiment.
Meanwhile, Chinese government bonds have benefited, with the 30-year yield dropping amid risk-off sentiment. Currency markets will focus on any signals from China’s central bank, which manages the yuan’s daily reference rate.
Analysts warn that while the trade tensions may temporarily dent the rally, the longer-term trajectory of Chinese equities may remain positive, though some moderation could occur to align with fundamentals.
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