China's stocks and currency faced pressure upon resuming trading after a week-long break due to a renewed trade dispute with the United States and turbulence in the global artificial intelligence sector. While the initial tariffs imposed by the U.S. were lower than anticipated, providing relief in Hong Kong where Chinese stocks saw a rally, optimism surrounding China's AI company, DeepSeek, boosted AI stocks.
Market reactions to Trump's tariffs and Beijing's responses were fairly contained, with the CSI300 and Shanghai Composite Indexes closing around 0.6% lower. Focus now lies on bolstering confidence among investors. Analyst Wei Jixing noted that the effects of the tariffs on Chinese goods had been factored into the market, and the market appeared to be shifting attention towards more proactive domestic policies.
The Chinese central bank's decision to set the yuan midpoint at a strong level was interpreted as a signal that Beijing was hesitant to immediately devalue its currency in response to the tariffs. This move, seen as a strategic stance, had implications for China's negotiating position regarding tariffs.
Despite uncertainties following Trump's announcements, there was a sense of relief in the markets as the initial tariffs were milder than expected, with hopes for potential resolutions in future trade talks between Trump and Xi Jinping. The market exhibited optimism towards sectors such as AI and electric vehicles, leading to gains in Hong Kong stocks. Conversely, shares of companies vulnerable to global trade pressures experienced declines.
While concerns about a prolonged trade conflict persist, the market sentiment remains relatively stable. The rise in AI-related stocks in China indicated positive market expectations, especially in comparison to Hong Kong's tech sector. Despite broader macroeconomic challenges, investors are cautiously navigating the evolving market conditions.