By Jiaxing Li
SHANGHAI/HONG KONG (Reuters) – China’s markets return from a week’s break on Wednesday to a fresh trade dispute with the United States and ructions in the global artificial intelligence sector. Investors said they are watching for what Beijing would do to bolster confidence.
The early signs point to a measured open for stock markets on the Mainland. Tariffs so far have been less than what the Trump administration had initially indicated and relief was evident in Hong Kong, where Chinese stocks rallied this week. Enthusiasm around China’s artificial intelligence company DeepSeek is also likely to bolster AI stocks.
Still, investors will look for signals from Beijing on how it sets the tone for things to come.
One of the first such signals would come on Wednesday from where the central bank fixes the yuan, the midpoint in the trading band within which it allows the currency to trade on any given day, analysts said.
Yuan’s weakness helped blunt the impact of tariffs in U.S. President Donald Trump’s first term as president, and the fix could hold clues to China’s negotiating stance on tariffs.
Mainland stock markets are also likely to take their cue from Hong Kong, which opened two days earlier after the Chinese New Year holiday. Chinese stocks there rose strongly on Tuesday, despite a move by the Trump administration to impose 10% tariffs on Chinese imports.
Much has happened during China’s week-long Lunar New Year holiday. Over the weekend, Trump imposed levies on goods from China, a move that prompted Beijing to announce targeted tariffs on U.S. imports and put several companies, including Google, on notice for possible sanctions.
Trump’s actions, which also included duties on Mexico and Canada, jolted global markets. The tariffs came as the world of artificial intelligence — another major driver for global stocks over the past year — was roiled when China’s DeepSeek unveiled a cheaper AI model just a day before China went on break. That triggered a selloff across technology stocks as investors reassessed the sector’s value.
Even so, there was some relief for markets, too. Although he described the initial tranche of tariffs on China as an “opening salvo,” they were lower than what Trump has threatened in the past. And the president also gave reprieve to two other trading partners – Canada and Mexico – leading investors to believe that China could strike a deal as well.
Trump and Chinese leader Xi Jinping are expected to speak soon, although the timing of the conversation is not clear. “Any sign that Xi and Trump have a ‘good talk’ or both countries expressed commitment to work on a deal should qualify as a temporary truce and be supportive of sentiments,” said Christopher Wong, a currency strategist at OCBC Bank.
Expectations Beijing will do more to support its economy in the face of U.S. tariffs, relief that the tariffs were lower than what Trump had initially threatened and bullishness on the AI and electric vehicle sectors drove gains in Hong Kong.
Chinese companies listed in Hong Kong rallied more than 4% this week to a three-month high, and tech heavyweights rallied nearly 7%.
The offshore yuan has shed 0.6% against the dollar since Jan 27, when mainland markets closed for the holiday, and hit a lifetime low this week. Onshore, the yuan closed at 7.2469 last week.
Investors will see any attempts by China to weaken the currency as a hint Beijing expects a protracted war and is using the yuan to counter the effect of tariffs, as it did during Trump’s first term in 2018.
“On the whole, having a trade war is not what the market wants… but investors are less likely to panic this time,” said Elizabeth Kwik, investment director of Asian equities at abrdn, referring to how markets had been positioning for trade tensions for months.
“The underlying market for Hong Kong is very similar to China, so they should move in the same direction. Market reaction should not be too negative.”
AI BETS
Artificial intelligence-related stocks are likely to rise as they play catch-up to stocks in Hong Kong, riding on bullishness on local technology firms spurred by DeepSeek.
China’s top chipmaker SMIC surged 8.5% to a record high in Hong Kong on Tuesday, and peer Hua Hong Semiconductor advanced 12.7%.
DeepSeek’s development “provides reason to be more optimistic on China’s domestic AI players” despite U.S. tech curbs, said Jason Chan, a senior investment strategist at Bank of East Asia. Their cheaper valuations compared with global peers could also be a tailwind, he said.
China’s benchmark blue chip index fell 3% in January as investors fretted over the increasingly volatile macro outlook and Beijing’s tepid policy response.
Weak economic growth in the world’s second-largest economy and trade risks could put pressure on policymakers to roll out more forceful support measures, investors said.
“China will need to deal with domestic issues including property and consumption, and improve the economic fundamentals regardless of how the tariff war pans out,” said abrdn’s Kwik.
(Reporting by Jiaxing Li; Editing by Vidya Ranganathan and Paritosh Bansal and Anna Driver)
