Read More: China Hits Back at Trump Tariffs with 34% Duties on All US Goods
US-listed shares of Chinese companies suffered heavy losses across the board, with e-commerce firms Alibaba Group Holding Ltd. and JD.com Inc. declining over 9% each after trading opened in New York. The Nasdaq Golden Dragon China Index declined over 7%, the biggest intraday drop since October.
“This looks a bit like escalation on China’s side,” said Kévin Net, head of Asian equities at la Financière de l’Echiquier in Paris. “We thought they would continue to answer in a more measured way, and instead counteract with a bit more domestic stimulus.”
Chinese stocks have outperformed global peers this year amid growing optimism over the country’s technological breakthrough in artificial intelligence. The MSCI China Index has risen 13% year-to-date, compared with an 11% drop in the S&P 500 Index.
See also: Xi signals China may finally move to end deflationary price wars
Resilience tested
The Chinese stock market had been resilient despite the rising trade tensions, as investors bet that external pressures will force policymakers to ramp up economic support to domestic consumers. The CSI 300 Index declined by only 0.6% on Thursday amid a rout in global equities. Both mainland and Hong Kong markets are closed on Friday for a public holiday.
A rapid escalation of tensions will now put that resilience to test. Response from the US will be key for investors to monitor, and Trump previously said that he would be willing to offer tariff relief if China approves a sale of TikTok’s US business by its parent, ByteDance Ltd.
China’s tariff announcement came earlier than expected, and “looks on purpose to inflict further damage on the US stock market while China is on holiday Friday and its market closed,” said Neo Wang, lead China macro analyst at Evercore ISI. “However, it is hard for us to make sense of the strength of Beijing’s tariff response.”
