(Bloomberg) — The potential resurgence of a trade war between Beijing and Washington could pose significant risks to the explosive rises seen in Chinese stocks this year, as well as adversely affect the value of the yuan.
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Global stock markets faced a downturn during US trading hours on Friday after President Donald Trump warned of a “massive” tariff hike on Chinese imports. He mentioned that a hefty 100% tariff would take effect on China starting Nov. 1 and that stricter export restrictions on critical software would also be imposed. His statements came after China announced its own export limitations on rare earth materials earlier that week.
As Chinese markets prepare for their initial response on Monday, any potential decline may be mitigated by weekend disclosures from the White House indicating a willingness to negotiate, combined with Trump’s remarks expressing a desire to assist rather than hinder China.
On Monday morning, currencies such as the Australian dollar saw slight increases, while the offshore yuan rose 0.1% against the dollar, recovering some of Friday’s losses.
Despite this, China’s stock market and yuan may still experience downward pressure; however, “I would anticipate that the pressure might not be as severe as I would have predicted a few hours ago following Trump’s remarks” stated Michael Brown, a strategist at Pepperstone Group. “Nevertheless, some weakening is expected.”
A key index tracking Chinese stocks traded in the US plummeted over 6% on Friday, marking its largest decline since trade tensions escalated in April. Similarly, American stocks suffered, with Nvidia Corp., entangled in the two nations’ export control discussions, dropping nearly 5%. Emerging market currencies also weakened.
A prolonged deterioration in relations between the world’s two largest economies could jeopardize one of the year’s top-performing stock markets and rekindle concerns regarding China’s attractiveness to investors.
Hong Kong’s Hang Seng Index has surged 31% in 2025, as Chinese equities thrived from a temporary pause in trade hostilities with the US and the positive outlook surrounding the country’s rising influence in artificial intelligence. Notably, Alibaba Group Holding Ltd. has soared over 100%, while Tencent Holdings Ltd. has increased by nearly 60%. This rally follows four consecutive years of decline for the Hang Seng through 2023.
A persistent decline in the yuan is generally detrimental for Asian currencies, as the yuan is traditionally viewed as a stabilizing force in the region. Emerging Asian currencies have lagged behind most of their emerging market counterparts this year, with the Bloomberg Asia Dollar index rising only 2.6% against the dollar. In contrast, a broader emerging market currency index has gained 6.4%, positioning it for its strongest performance since 2017.
