After bracing for a torrent of tariffs by Donald Trump from his first day in office, investors in Chinese assets are breathing a sigh of relief — at least for now.
Chinese stocks advanced as the US president fell short of announcing immediate action against the Asian rival, even as he threatened tariffs of as much as 25% on Mexico and Canada by Feb. 1. Trump declined to say when he would impose additional levies on China.
The Hang Seng China Enterprises Index was up 1.3% as of the mid-day trading break on Tuesday. The CSI 300 Index, a benchmark for mainland shares, fluctuated before gaining 0.4%. The offshore yuan slipped 0.1%, holding on to most of its overnight rally.
Chinese stocks gained the most in Asia, staging a relief rally after concern over heightened trade tensions kept the market pressured for months. The MSCI China Index tumbled into a bear market earlier this month, and the offshore yuan has hovered near a record low despite the central bank’s efforts to prop up the currency.
“Be flexible, is the only thing I can think of right now as it’s too hard trying to predict the uncertainty,” said Serena Zhou, an economist with Mizuho Securities Asia Ltd. “We still believe the threat of a 60% tariff on China exports is intended as leverage to secure better terms in negotiation with China.”
The overall mood among traders was one of cautious optimism, as the possibility of more tariffs to be announced in the coming weeks, if not days, loomed large.
Following Trump’s comments on Canada and Mexico, their currencies fell as much as 1.4% each.
“Global stocks will climb further and the dollar has more downside because the most important conclusion from President Trump’s initial actions is a more tentative and drawn-out approach to tariffs than threatened, at least for now.”— Mark Cudmore, Markets Live Strategist
Hopes have been rising for a Xi-Trump deal to ease tensions following a phone call last week, which the US leader described as “very good.” While a trade war is nothing new for Beijing, the Chinese economy is in a much weaker state than during Trump’s first presidency, with a bigger reliance on exports.
Global markets went on a rollercoaster ride as investors tuned into a flurry of executive orders signed by Trump. A Bloomberg gauge of the dollar gained momentum after sliding more than 1% on Monday. Ten-year US Treasury yields fell as much as 10 basis points in Asia on Tuesday, as traders recalibrated inflation bets stoked by fears of higher tariffs immediately.
While traders took Trump’s lack of day-one commitment on China tariffs as a positive sign, any reprieve can be short-lived given his penchant for swift policy reversals. The president indicated he could also impose taxes on Chinese goods if Beijing blocked the sale of the social media app TikTok to a US entity.
“It’s not going to be one-way trade in a Trump regime,” said Christopher Wong, strategist at Oversea-Chinese Banking Corp. “Tariff development remains highly uncertain in terms of timing, magnitude and scope of product. Basically a lot of headline-trading.”
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