Investors in China are preparing for a challenging Monday as the markets reopen following an extended weekend and account for the country's response to US tariffs. Chinese stocks listed in the US saw a significant 8.9% decline on Friday, the largest drop since October 2022, amidst global market turbulence triggered by Beijing's imposition of 34% tariffs on all US imports. Chinese and Hong Kong stock markets were closed for a holiday during this time, resuming trading on Monday.
A similar drop in local shares could push various Chinese stock indicators, including the Hang Seng China Enterprises Index, which has been a top performer globally this year, into a technical correction and potentially nearing a bear market territory. This situation could reverse the recent recovery in Chinese assets, unless investors from the mainland and bargain hunters intervene to limit the decline.
China's swift retaliation to the tariffs imposed by US President Donald Trump has heightened concerns about a possible global recession. The sharp sell-off in US-listed Chinese stocks also reflects worries about potential retaliatory actions between the top two economies.
In light of these developments, experts anticipate a negative start on Monday, presenting a buying opportunity for some investors. The impact of tariff wars on China's GDP growth, estimated at 2 percentage points, could be offset by government stimulus measures and trade agreements with non-US nations.
Goldman Sachs Group Inc. has revised down its 12-month targets for Chinese equity indexes, citing event risks and profit-taking pressures. Analysts expect the market to test risk-case valuations in the short term until there is clarity on trade and policy matters or a new tariff balance is achieved.
Analysts are also closely monitoring the Chinese yuan, speculating that Beijing may devalue the currency to support exports and counter the effect of higher US tariffs. The yuan experienced a decline to its lowest level since February in onshore trading following the announcement of Trump's tariffs.