China markets return from holiday facing trade war and AI rally

Hua Hong Grace Semiconductor

04/02/2025 23:00

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      Mainland markets return to tariffs after week-long break
    

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      HK-listed Chinese shares have surged this week
    

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      Weak yuan fixing could signal Beijing's approach to trade
    

  
    By Jiaxing Li
       SHANGHAI/HONG KONG, Feb 5 (Reuters) - China's markets
return from a week's break on Wednesday to a fresh trade dispute
with the United States and ructions in the global artificial
intelligence sector. Investors said they are watching for what
Beijing would do to bolster confidence.
    The early signs point to a measured open for stock markets
on the Mainland. Tariffs so far have been less than what the
Trump administration had initially indicated and relief was
evident in Hong Kong, where Chinese stocks rallied this week.
Enthusiasm around China’s artificial intelligence company
DeepSeek is also likely to bolster AI stocks.
    Still, investors will look for signals from Beijing on how
it sets the tone for things to come.
    One of the first such signals would come on Wednesday from
where the central bank fixes the yuan  CNY=CFXS , the midpoint
in the trading band within which it allows the currency to trade
on any given day, analysts said. 
    Yuan’s weakness helped blunt the impact of tariffs in U.S.
President Donald Trump's first term as president, and the fix
could hold clues to China's negotiating stance on tariffs.
     
Mainland stock markets  .SSEC   .CSI300  are also likely to take
their cue from Hong Kong, which opened two days earlier after
the Chinese New Year holiday. Chinese stocks there rose strongly
on Tuesday, despite a move by the Trump administration to impose
10% tariffs on Chinese imports.
Much has happened during China's week-long Lunar New Year
holiday. Over the weekend, Trump imposed levies on goods from
China, a move that prompted Beijing to announce targeted tariffs
on U.S. imports and put several companies, including Google, on
notice for possible sanctions. 
Trump’s actions, which also included duties on Mexico and
Canada, jolted global markets. The tariffs came as the world of
artificial intelligence -- another major driver for global
stocks over the past year -- was roiled when China’s DeepSeek
unveiled a cheaper AI model just a day before China went on
break. That triggered a selloff across technology stocks as
investors reassessed the sector's value.
    Even so, there was some relief for markets, too. Although he
described the initial tranche of tariffs on China as an "opening
salvo," they were lower than what Trump has threatened in the
past. And the president also gave reprieve to two other trading
partners – Canada and Mexico – leading investors to believe that
China could strike a deal as well.  
Trump and Chinese leader Xi Jinping are expected to speak soon,
although the timing of the conversation is not clear.   "Any
sign that Xi and Trump have a 'good talk' or both countries
expressed commitment to work on a deal should qualify as a
temporary truce and be supportive of sentiments," said
Christopher Wong, a currency strategist at OCBC Bank. 
     
  Expectations Beijing will do more to support its economy in
the face of U.S. tariffs, relief that the tariffs were lower
than what Trump had initially threatened and bullishness on the
AI and electric vehicle sectors drove gains in Hong Kong. 
    Chinese companies listed in Hong Kong  .HSCE  rallied more
than 4% this week to a three-month high, and tech heavyweights
 .HSTECH  rallied nearly 7%.
    The offshore yuan  CNH=D3  has shed 0.6% against the dollar
since Jan 27, when mainland markets closed for the holiday, and
hit a lifetime low this week. Onshore, the yuan  CNY=CFXS 
closed at 7.2469 last week. 
    Investors will see any attempts by China to weaken the
currency as a hint Beijing expects a protracted war and is using
the yuan to counter the effect of tariffs, as it did during
Trump's first term in 2018.
    "On the whole, having a trade war is not what the market
wants... but investors are less likely to panic this time," said
Elizabeth Kwik, investment director of Asian equities at abrdn,
referring to how markets had been positioning for trade tensions
for months.
    "The underlying market for Hong Kong is very similar to
China, so they should move in the same direction. Market
reaction should not be too negative."      
    AI BETS
Artificial intelligence-related stocks are likely to rise as
they play catch-up to stocks in Hong Kong, riding on bullishness
on local technology firms spurred by DeepSeek.
    China's top chipmaker SMIC  0981.HK  surged 8.5% to a record
high in Hong Kong on Tuesday, and peer Hua Hong Semiconductor
 1347.HK  advanced 12.7%.
    DeepSeek's development "provides reason to be more
optimistic on China's domestic AI players" despite U.S. tech
curbs, said Jason Chan, a senior investment strategist at Bank
of East Asia. Their cheaper valuations compared with global
peers could also be a tailwind, he said.
    China's benchmark blue chip index  .CSI300  fell 3% in
January as investors fretted over the increasingly volatile
macro outlook and Beijing's tepid policy response.
    Weak economic growth in the world's second-largest economy
and trade risks could put pressure on policymakers to roll out
more forceful support measures, investors said.
    "China will need to deal with domestic issues including
property and consumption, and improve the economic fundamentals
regardless of how the tariff war pans out," said abrdn's Kwik. 
     

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China markets in 2025    https://tmsnrt.rs/4gpTzQT
China's markets as trade frictions rise in 2025    https://reut.rs/4jKm1QA
China's markets during 2018 trade war    https://reut.rs/4hIKe7T
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Jiaxing Li; Editing by Vidya Ranganathan and
Paritosh Bansal and Anna Driver)
((mailto:jiaxing.li@thomsonreuters.com +852 63358304))