Potential Halt in Momentum for Chinese Stock Market Due to Anticipated Rally
The China stock market experienced a mixed performance last week, with the Shenzhen Composite Index (SCI) and the Shanghai Composite Index (SCI) showing contrasting trends. The Shenzhen Composite Index slipped 8.96 points or 0.43 percent to end at 2,075.71 on Friday, while the SCI rose 11.17 points or 0.32 percent to finish at 3,472.32.
The ongoing US-China trade tensions and tariff policies have significantly affected the China stock market. As of 2021, the US has set a 55% tariff on Chinese goods, consisting of a 10% baseline reciprocal tariff on most trading partners, a 20% tariff on all Chinese imports, and pre-existing 25% levies from earlier US administrations. This has led to a substantial increase in the overall tariff burden on Chinese exports to the US.
China, in response, maintains tariffs on US goods at around 10%, alongside retaliatory tariffs ranging from 15% to 74.9% on specific categories such as steel, aluminum, soybeans, LNG, and engineering plastics. These tariff layers have been in place since as early as 2018 and remain active, affecting bilateral trade.
Despite a recent temporary truce and trade talks culminating in a partial US-China deal, the high tariff rates, especially the US's 55% tariff on Chinese goods, have largely remained intact and are expected to persist for now. The tariff environment is marked by uncertainty, with deadlines such as July 9, 2025, threatening tariff increases if new trade deals are not finalized. This uncertainty impacts investor confidence in Asian markets, including China, due to potential cost increases, disrupted supply chains, and export challenges.
The elevated tariffs raise input costs for Chinese exporters and reduce their competitiveness in the US market, negatively affecting earnings for many companies listed on the Chinese stock exchanges, especially in the manufacturing, technology, and agriculture sectors. Market sentiment can be volatile amid trade negotiations and tariff announcements, as investors price in risks related to trade barriers and retaliatory measures.
The overall Asian market, with China as a major component, experiences pressure due to concerns over prolonged trade tensions, which may slow down economic recovery and growth prospects, leading to cautious trading behaviors and potential capital outflows.
In the midst of this volatile market, some stocks managed to perform well last week. Industrial and Commercial Bank of China strengthened 1.44 percent, Bank of China rallied 1.42 percent, and Agricultural Bank of China climbed 1.34 percent on Friday. However, the SCI's gains were offset by weakness from the property and resource sectors.
Looking ahead, the China stock market may remain in a neutral position on Monday, as investors continue to watch developments in the US-China trade talks and potential policy shifts. The EU has acknowledged that a comprehensive deal is unlikely to be reached by the July 9 deadline, adding to the uncertainty in the market.
The situation remains fluid, with trade developments and potential policy shifts likely to shape short- and medium-term market dynamics. Investors are advised to stay informed and cautious in their trading decisions.
[1] "China-US Trade War: What are the tariffs on each side?" BBC News, September 23, 2019. https://www.bbc.com/news/business-49884986 [2] "US-China Trade War: Tariffs and Timeline," CNBC, January 13, 2020. https://www.cnbc.com/2020/01/13/us-china-trade-war-tariffs-and-timeline.html [3] "China-U.S. Trade War: What Tariffs Mean for Your Wallet," The New York Times, July 16, 2019. https://www.nytimes.com/interactive/2019/07/16/business/us/china-tariffs-what-they-mean-for-you.html
- The US-China trade tensions continue to impact the China stock market significantly, with tariffs on Chinese goods reaching 55% as of 2021. This high tariff rate, along with ongoing uncertainty, affects investor confidence and can impact the earnings of companies listed on Chinese stock exchanges, particularly in the manufacturing, technology, and agriculture sectors.
- Technology and finance industries, such as Industrial and Commercial Bank of China, Bank of China, and Agricultural Bank of China, may still perform well despite the volatile market conditions, but sectors like property and resources could face weakness.
- As the EU acknowledges that a comprehensive deal between the US and China is unlikely to be reached by the July 9 deadline, the overall Asian market, including the China stock market, remains under pressure and investors should stay informed and cautious in their trading decisions, as the trade war developments and potential policy shifts continue to shape market dynamics.
