Chinese investors are preparing for a turbulent start to the week as markets reopen on Monday following an extended holiday. The reopening comes amid heightened U.S.-China trade tensions after Beijing imposed sweeping tariffs in response to American levies, sparking a global market rout.
On Friday, while mainland China and Hong Kong markets were closed, Chinese stocks listed in the U.S. plunged by 8.9%—marking their steepest drop since October 2022. The broad selloff followed China’s announcement of 34% tariffs on all U.S. imports.
A similar drop in domestic shares could push key Chinese indices, including the Hang Seng China Enterprises Index—this year’s top-performing major global gauge—into technical correction territory, or even a bear market. Such a shift would derail a budding recovery in Chinese assets unless mainland investors or bargain hunters intervene.
China’s Stock Market Rallied Until Trade War Tensions Flared
Despite rising tensions, Chinese equities had shown resilience earlier in the year. Optimism over advancements in artificial intelligence and expectations of increased policy support kept investor sentiment buoyant. The MSCI China Index had gained 13% year-to-date, contrasting sharply with a nearly 14% decline in the S&P 500 Index.
However, Goldman Sachs revised its outlook on Sunday, lowering its 12-month target for the MSCI China Index from 85 to 81, and trimming the CSI 300 Index forecast from 4,700 to 4,500. “The bull run will slow on event risks and profit-taking pressures,” analysts including Kinger Lau said in a Bloomberg note. “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.”
Yuan Weakens as Beijing Faces Pressure to Boost Exports
The Chinese yuan also slid to its weakest level since February in onshore trading after the U.S. announced higher tariffs. Analysts suggest Beijing could intentionally allow the currency to depreciate further to counteract the impact of U.S. levies and support exports.
Trump Calls China’s Retaliation a ‘Panic Move’
China’s decision to impose counter-tariffs and introduce export controls on rare earth elements prompted a sharp reaction from former U.S. President Donald Trump, who described Beijing’s actions as miscalculated.
“China played it wrong, they panicked – the one thing they cannot afford to do!” Trump wrote on Truth Social in all caps, criticizing Beijing’s response to his trade strategy. He added that China had made “the wrong” move.
Meanwhile, a Weibo account linked to China Central Television warned that China is prepared to “fight till the end.” State-owned Xinhua News Agency reported on Saturday that Beijing would continue to take “resolute measures” to defend its economy and protect its sovereignty and interests.
Global Markets Rattle Under Growing Trade War Fears
Global markets tumbled on Friday following China’s decision to respond with direct countermeasures, including the 34% tariff on all American imports. The move intensified investor concerns over a prolonged trade war, with equities and oil prices seeing sharp declines.
The U.S. stock market bore the brunt of the turmoil, with the S&P 500 losing 6% and the tech-heavy Nasdaq officially entering a bear market after falling over 20% 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.”
Fed Chair Warns of Economic Risks from Tariff Surge
Adding to the tension, Federal Reserve Chair Jerome Powell cautioned that unexpectedly large tariff hikes could increase inflation and unemployment. “Significantly larger than expected,” he said of the tariff measures, noting their potential to disrupt economic stability.
Global Reactions Vary as China Takes the Lead in Pushback
While China has responded aggressively to U.S. trade actions, other Asian countries have opted for negotiation over confrontation. Vietnam, Cambodia, and Indonesia signaled openness to dialogue, and Singapore confirmed it would not retaliate. India is reportedly exploring a bilateral trade agreement to soften the blow of ongoing tensions.
Despite job data showing the U.S. added 228,000 jobs last month—exceeding expectations—Wall Street remained largely unfazed by the positive news amid broader concerns over global trade instability.
As Chinese markets reopen on Monday, investors across the globe will be watching closely to see how the world’s second-largest economy responds to intensifying trade pressures.