Chinese equities listed in Hong Kong fell after US President Donald Trump imposed a 10% levy on China.
The Hang Seng China Enterprises Index dropped as much as 2.5% in early trading before paring the decline to 1% as trading resumed after the Lunar New Year holiday. The weakness was in line with losses across the region.
Hong Kong’s stock market had been shut since midday Jan 28 while equities on the mainland will start trading again on Feb 5.
Trump’s tariffs are adding to the headwinds buffeting Chinese shares as weak consumption and a long-running real estate slump keep investors on the sidelines.
Traders are looking to an annual legislative meeting in March for further stimulus to revive a market that has lost around half the gains it posted following a policy blitz unveiled in September.
“Historically speaking, the Hong Kong market is usually weak after Chinese New Year and the market is still digesting Trump’s tariff escalation,” said Billy Leung, an investment strategist at Global X ETFs. “As for the tariffs’ fundamental impact, the 10% was already better than expected so the risk is toward less severe risks and we are probably looking more toward Chinese actions which have been rather mild.”
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Trump imposed tariffs of 25% on Canada and Mexico and 10% on China on Saturday, with the levies set to come into effect Tuesday. While Canada and Mexico have vowed to hit back, China’s Commerce Ministry said it would initiate “corresponding countermeasures” without elaborating, and pledged to file a complaint at the World Trade Organization.
The latest tariff announcement from Washington also weighed on other Chinese assets, with the offshore yuan sliding as much as 0.7% on Monday to approach a record low versus the US dollar.
Still, the HSCEI’s drop was smaller than some had feared. The resilience could be partly due to a promising outlook for tech stocks after Chinese startup DeepSeek’s low-cost AI model showcased Beijing’s strength in the industry, said Xin-Yao Ng, an investment director at abrdn in Singapore.
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Stimulus push
The additional levy will worsen the drag on growth, with a private survey released Monday showing that China’s manufacturing activity unexpectedly declined for a second straight month in January.
Taken together, all this may reinforce the pressure for Beijing to do more to stimulate growth.
“If the additional tariffs are indeed imposed on Tuesday as threatened, we think it is likely that Beijing responds with cuts to reserve requirement ratio and onshore benchmark rates and modest devaluation of the yuan,” said Homin Lee, a Singapore-based senior macro strategist at Lombard Odier.
China’s onshore benchmark CSI 300 Index retreated 3% in January after posting back-to-back monthly gains, as investors sought more aggressive measures from authorities to reinvigorate the market.
Analysts say Beijing’s efforts — including plans to stabilise the stock market by increasing pension investments and subsidising consumer products — fail to address the weakness in consumption.
Chart: Bloomberg
