The latest global market volatility has reinforced China’s status as a distinct market, even if its growth has slowed recently. While U.S. tech stocks plunged and Japanese stocks swung wildly in a historic two days of price action , Chinese stocks suffered less . As of the end of the Asia trading week Friday, before the U.S. market open, the Nasdaq 100 and Nikkei 225 were both down by about 2.5% over the last five trading days, according to Wind Information. In contrast, the Shanghai composite was down by 1.5% and the MSCI China index was up by 0.2%. Hong Kong’s Hang Seng Index was up by 0.9%. “If we continue [to have] volatile markets in the US and other developed markets, people are going to look elsewhere to generate returns,” Matt Wacher, chief investment officer, Asia-Pacific, for Morningstar Investment Management, said in a phone interview Friday. “We think the fundamentals will win out in the end and capital will come back to some of the companies in China because they’re too compelling an investment opportunity to pass up,” he said. Fund flow data from EPFR showed that international investors significantly increased their purchases of Chinese stocks on Monday, Aug. 5, before trimming holdings the next day. The investors remained net buyers of Chinese stocks for the third quarter so far as of Aug. 6, the data showed. “We believe that there are reasons for international investors to look towards redeploying some allocation back to the China equity market after being relatively lightly positioned,” William Yuen, investment director, Invesco, said in an emailed statement Friday. “Valuations of Chinese equities are near historical lows and the stock market is broad and deep enough to enable investors to search for growth opportunities,” he said. “The economy has also shown signs of stabilizing, as policy easing measures take effect. Finally, the low correlation of the China stock market with the U.S. stock market could provide investors with diversification benefits.” Chinese stocks, especially those traded on the mainland, have historically been less correlated to global market moves due to Beijing’s capital controls and other restrictions. International investors without operations in China have gradually been able to access some of those mainland stocks, called A shares, via stock-connect programs through Hong Kong. However, this year ”foreign long-only funds and hedge funds have been actively selling” A shares, HSBC analysts pointed out in an Aug. 6 report. That’s left net inflows from both fund types at 13 billion yuan ($1.81 billion) for the year through Aug. 2, the report said. On the flip side, semiconductor company Montage Technology and state-owned train company CRRC — both listed in Shanghai — led net inflows during that time, according to HSBC. Both stocks have fallen over the last five trading days. The latest global market volatility was spurred in part by the unwinding of the Japanese yen carry trade, after the Bank of Japan’s rate hike and growing expectations for U.S. rate cuts. A carry trade is a practice in which investors borrow money in a currency from a country with low interest rates, and invest in currencies with higher yields. The investors then profit from the difference in rates, but can lose money if this suddenly changes. A worrying U.S. jobs report on Aug. 2 helped fuel expectations that the Federal Reserve will soon finally cut interest rates, shifting assumptions about how much certain assets might yield in returns versus others. It hasn’t been hard for investors to choose where to put most of their money when the 10-year Treasury yield has traded above 4% — versus 2.17% for the Chinese equivalent. HSBC’s multi-asset team expects a stock market sell-off from unwinding the Japanese yen carry trade could last one month. If the Fed does cut rates, that could support the case for Chinese stocks, Steven Sun, head of research, HSBC Qianhai Securities, and a team said in the Aug. 6 report. U.S. rate cuts would mean the People’s Bank of China could then further ease its monetary policy, “which is critical for China’s nascent property market recovery,” the analysts said. They added that a weaker U.S. dollar makes the Chinese yuan more attractive to foreign inflows, while U.S. rate cuts are generally positive for emerging markets such as China. China’s latest trade and inflation data released in the last several days indicated that domestic demand is holding up, although the economy isn’t necessarily firing on all cylinders. The National Bureau of Statistics is scheduled to release additional data for July on Thursday, of which retail sales will be key to watch after it grew by just 2% in June. However, global institutions’ caution on Chinese stocks won’t likely change quickly. “Investors should still prefer the US to Chinese financial markets,” Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, said in an email. “Times of economic stress typically favor US markets, even when the US is the source of stress. We believe that’s because the US economy is more diverse than those that are export-oriented (as China’s still is).” “The real problem with China’s investment outlook isn’t the current market volatility, but the Chinese economy’s ongoing weakness and the disappointing policy response so far,” he said. “Deflation is the central problem.” He noted that last month’s ” Third Plenum ” meeting focused on “resilience to external shocks” instead of a range of domestic problems. Chinese stocks have struggled to rebound amid dour sentiment about the massive property market and other economic challenges since the Covid-19 pandemic. Hong Kong’s Hang Seng Index is clinging to gains for the year so far — after a record losing streak of four down years. “I think what you saw over the last few days has been that some of those names, Alibaba , Tencent , have held up pretty well in the face of that global volatility,” Morningstar’s Wacher said. “I think that’s because they’re already priced pretty reasonably from a valuation perspective, not much more to fall.” Tencent, the largest stock by market capitalization in the Hang Seng Index, and Alibaba’s Hong Kong-listed shares both closed Friday with gains of more than 3% for the week. “In Alibaba’s case, it’s still got a very good management team, similar to Tencent,” Wacher said, pointing to efforts aligned with investors’ interests in balance sheets and cutting costs. “We think that their inwardly focused on China consumption, and China consumption will turn around,” he said. “They’re going to generate most of their income within China, less susceptible to trade wars and shenanigans that go on in the global economy. Compelling opportunities from that perspective.”
Chinese national flags flutter on boats near shipping containers at the Yangshan Port outside Shanghai, China, February 7, 2025.
Go Nakamura | Reuters
BEIJING — China’s reaction to new U.S. tariffs will likely focus on domestic stimulus and strengthening ties with trading partners, according to analysts based in Greater China.
Hours after U.S. President Donald Trump announced additional 34% tariffs on China, the Chinese Ministry of Commerce called on the U.S. to cancel the tariffs, and vowed unspecified countermeasures. The sweeping U.S. policy also slapped new duties on the European Union and major Asian countries.
Chinese exports to the U.S. this year had already been hit by 20% in additional tariffs, raising the total rate on shipments from China to 54%, among the highest levied by the Trump administration. The effective rate for individual product lines can vary.
But, as has been the case, the closing line of the Chinese statement was a call to negotiate.
“I think the focus of China’s response in the near term won’t be retaliatory tariffs or such measures,” said Bruce Pang, adjunct associate professor at CUHK Business School. That’s according to a CNBC translation of the Chinese-language statement.
Instead, Pang expects China to focus on improving its own economy by diversifying export destinations and products, as well as doubling down on its priority of boosting domestic consumption.
China, the world’s second-largest economy, has since September stepped up stimulus efforts by expanding the fiscal deficit, increasing a consumption trade-in subsidy program and calling for a halt in the real estate slump. Notably, Chinese President Xi Jinping held a rare meeting with tech entrepreneurs including Alibaba founder Jack Ma in February, in a show of support for the private sector.
The policy reversal — from regulatory tightening in recent years — reflects how Beijing has been “anticipating the coming slowdown or even crash in exports,” Macquarie’s Chief China Economist Larry Hu said in a report, ahead of Trump’s latest tariff announcement. He pointed out that the pandemic-induced export boom of 2021 enabled Beijingto “launch a massive regulatory campaign.”
“My view stays the same,” Hu said in an email Thursday. “Beijing will use domestic stimulus to offset the impact of tariffs, so that they could still achieve the growth target of ‘around 5%.'”
Instead of retaliatory tariffs, Hu also expects Beijing will focus on still using blacklists, export controls on critical minerals and probes into foreign companies in China. Hu also anticipates China will keep the yuan strong against the U.S. dollar and resist calls from retailers to cut prices — as a way to push inflationary pressure onto the U.S.
China’s top leaders in early March announced they would pursue a target of around 5% growth in gross domestic product this year, a task they emphasized would require “very arduous work” to achieve. The finance ministry also hinted it could increase fiscal support if needed.
About 20% of China’s economy relies on exports, according to Goldman Sachs. They previously estimated that new U.S. tariffs of around 60% on China would lower real GDP by around 2 percentage points. The firm still maintains a full-year forecast of 4.5% GDP growth.
Changing global trade
What’s different from the impact of tariffs under Trump’s first term is that China is not the only target, but one of a swath of countries facing hefty levies on their exports to the U.S. Some of these countries, such as Vietnam and Thailand, had served as alternate routes for Chinese goods to reach the U.S.
At the Chinese export hub of Yiwu on Thursday, businesses seemed nonchalant about the impact of the new U.S. tariffs, due to a perception theiroverseas competitors wouldn’t gain an advantage, said Cameron Johnson, a Shanghai-based senior partner at consulting firm Tidalwave Solutions.
He pointed out that previously, the U.S. had focused its trade measures on forcing companies to remove China from their supply chains and go to other countries. But Chinese manufacturers had expanded overseas alongside that diversification, he said.
“The reality is this [new U.S. tariff policy] essentially gives most of Asia and Africa to China, and the U.S. is not prepared,” Johnson said. He expects China won’t make things unnecessarily difficult for U.S. businesses operating in the country and instead will try harder to build other trade relationships.
Since Trump’s first four-year term ended in early 2021, China has increased its trade with Southeast Asia so much that the region is now Beijing’s largest trading partner, followed by the European Union and then the U.S.
The 10 member states of the Association of Southeast Asian Nations (ASEAN) joined China, Japan, South Korea, Australia and New Zealand in forming the world’s largest free trade bloc — the Regional Comprehensive Economic Partnership (RCEP) — which came into being in early 2022. The U.S. and India are not members of the RCEP.
“RCEP member countries will naturally deepen trade ties with one another,” Yue Su, principal economist, China, at the Economist Intelligence Unit, said in a note Thursday.
“This is also partly because China’s economy is likely to remain the most — or at least among the most—stable in relative terms, given the government’s strong commitment to its growth targets and its readiness to deploy fiscal policy measures when needed,” she said.
Uncertainties remain
The extent to which all countries will be slapped with tariffs this week remains uncertain as Trump is widely expected to use the duties as a negotiating tactic, especially with China.
“Unlike some of the optimistic market forecasts, we do not expect a US-China bilateral grand bargain,” Ting Lu, chief China economist at Nomura, said in a note Thursday.
“We expect tensions between these two mega economies to worsen significantly,” he said, “especially as China has been making large strides in high-tech sectors, including AI and robotics.”
Check out the companies making headlines in midday trading. Lululemon – The athleisure company saw shares plunging more than 11% after President Donald Trump’s imposition of tariffs on countries where the firm imports a big portion of its products. In 2024, Lululemon sourced 40% of its products from Vietnam, which was hit by a 46% tariff by the administration. Almost 90% of Lululemon’s products are made in Vietnam, Cambodia, Sri Lanka, Indonesia and Bangladesh. Deckers Outdoor – Shares of the footwear company plunged more than 14% following Trump’s reciprocal tariffs rollout. The Ugg maker has 68 supply chain partners in Vietnam and 125 suppliers in China. Nike – The athletic apparel stock declined 12.1% following the Trump administration’s wide-ranging tariffs upon major trading partners. Nike manufactures roughly half its footwear in China and Vietnam, which will be subject to tariff rates of 54% and 46%, respectively. Discount retail stocks – Shares of Five Below and Dollar Tree shed more than 27% and 9%, respectively, on the heels of the new reciprocal tariff announcement. Both companies are big sellers of imported goods, and Dollar Tree CEO Michael Creedon has said that the company might increase prices to offset the tariff impact. Bank stocks – Shares of several banks Bank stocks pulled back as traders reckoned with the potential economic fallout of Trump’s tariff policy. Shares of Goldman Sachs and Morgan Stanley each slid nearly 8%, while JPMorgan Chase , Bank of America and Citi fell more than 5%, 9% and 10%, respectively. Ford – The automaker’s stock declined nearly 4%. On Thursday, Ford announced that it’s offering employee pricing to all customers on multiple models in a program called “From America for America.” Trump’s 25% tariffs on imported vehicles went into effect Thursday. Big Tech stocks — Shares of mega-cap technology names plummeted amid investor concerns that the businesses will face pressures from Trump’s tariffs. Tesla declined nearly 5%, while shares of Amazon and Apple fell more than 7% and 8%, respectively. Alphabet shares also moved more than 3% lower. Semiconductor stocks – Shares of chipmakers also took a hit after the tariff announcement, even after the White House said that semiconductors wouldn’t be subject to the new levies. Shares of Nvidia and Advanced Micro Devices both fell more than 6%, while Broadcom declined more than 8% and Qualcomm slumped more than 9%. Microsoft – Shares shed about 3% after Bloomberg, citing people familiar with the matter, reported that the company is scaling back its data center projects around the world. RH – The luxury home furnisher nosedived 43.5%, on track for its worst day on record after fourth-quarter earnings and forward guidance came in weaker than expected. RH earned $1.58 per share, excluding items, on $812 million in revenue, while analysts polled by LSEG penciled in $1.92 per share and $830 million in revenue. CEO Gary Friedman told analysts that the company was operating within the ” worst housing market in almost 50 years .” Wayfair – Shares tumbled 25% on the back of Trump’s newly announced tariffs, with countries such as Vietnam, Thailand, Cambodia and the Philippines all receiving higher tariffs than the baseline 10%. During a February earnings call, Wayfair CEO Niraj Shah said that these aforementioned nations “have grown as places where folks have factories and where our goods are coming from.” Lyft – The ride-sharing stock dropped more than 9% after receiving a double downgrade to underperform from buy at Bank of America, citing increasing headwinds from autonomous vehicles. Lamb Weston – Shares gained more than 9% after the food processing company posted better-than-expected third-quarter results. Lamb Weston reported adjusted earnings of $1.10 per share on $1.52 billion in revenue, while analysts polled by FactSet were expecting 86 cents per share on $1.49 billion in revenue. — CNBC’s Alex Harring, Hakyung Kim, Yun Li and Lisa Kailai Han contributed reporting.
Check out the companies making headlines before the bell. Lululemon – Shares tumbled more than 12% on the heels of President Donald Trump’s new wide-ranging tariffs . According to an SEC filing , the company sourced 40% of its products from Vietnam in 2024 – a country that was slammed with a 46% tariff. Almost 90% of Lululemon’s products are made in Vietnam, Cambodia, Sri Lanka, Indonesia and Bangladesh. Nike — Shares slumped about 9% after the United States lifted tariffs Wednesday. Nike manufactures roughly half its footwear in China and Vietnam, which will be subject to tariff rates of 54% and 46%, respectively. Discount retailers — Dollar Tree and Five Below tumbled more than 10% and 15%, respectively. Dollar Tree CEO Michael Creedon previously said the company may raise prices on items to offset the impact of new U.S. tariffs. The two companies are big sellers of imported goods. Ford — The automaker slipped 2.3%. Reuters reported that Ford will offer employee pricing to all customers on multiple models to absorb tariff costs, in a program called “From America for America.” Big Tech — Shares of mega-cap technology companies such as Nvidia fell as investors worried that the businesses will come under pressure from President Donald Trump’s new tariff regime. Nvidia dropped more than 5%, as did Tesla . Shares of Amazon.com slid more than 6%. Apple declined by more than 7%. Microsoft — The tech stock declined 2.3%. Bloomberg released another report stating that the XBox and Windows company is scaling back data center projects in the U.S. and overseas. JPMorgan , Citi , Goldman Sachs , Morgan Stanley — Bank stocks retreated sharply early Thursday as investors weighed the economic fallout of Trump’s tariff policy. Shares of JPMorgan Chase were down 3.8%, while Citi, Goldman Sachs and Morgan Stanley all slid more than 4%. RH — The luxury home furnisher plunged 28% after posting weaker fiscal fourth-quarter earnings and first-quarter guidance than Wall Street had estimated. RH earned $1.58 per share, excluding one-time items, on $812 million in revenue in the fourth quarter, while analysts polled by LSEG had penciled in $1.92 per share and $830 million in revenue. CEO Gary Friedman acknowledged to analysts that the company was operating in the “worst housing market in almost 50 years.” Deckers Outdoor — The footwear company that makes Ugg boots sold off more than 12% after the Trump administration’s reciprocal tariffs rollout. Deckers has 68 supply chain partners in Vietnam and 125 suppliers in China. Wayfair — The furniture retailer weakened about 12% on the back of higher U.S. tariffs on goods from Cambodia, Vietnam, Thailand and the Philippines. CEO Niraj Shah said during an earnings call in February that the countries “have grown as places where folks have factories and where our goods are coming from.” — CNBC’s Alex Harring, Jesse Pound, Sarah Min and Sean Conlon contributed reporting