After months of anticipating harsh tariffs from U.S. President Donald Trump, investors in Chinese assets found some respite on his first day in office, as he refrained from immediate punitive measures against China. While Trump did threaten to impose tariffs of up to 25% on Mexican and Canadian imports by February 1, he made no announcements regarding additional levies on Chinese goods, offering a temporary reprieve to the market.
The Hang Seng China Enterprises Index rose by 1.3% during midday trading, while the CSI 300 Index, representing mainland stocks, fluctuated before ultimately gaining 0.4%. The offshore yuan dipped 0.1%, maintaining most of its overnight rally. Chinese stocks, which had been under pressure for months due to heightened trade tensions, enjoyed the most significant gains in Asia on Tuesday, with the MSCI China Index recently falling into a bear market. Despite efforts by the People’s Bank of China to stabilize the yuan, the currency had been hovering near record lows.
“The key takeaway right now is to remain flexible — it’s too uncertain to predict,” said Serena Zhou, an economist at Mizuho Securities Asia Ltd. “We still view the potential 60% tariff threat on China exports as a negotiating tool to secure better terms in future trade talks.”
Although the mood was one of cautious optimism, traders remain wary of the possibility of further tariffs being announced in the coming weeks. Trump’s comments on Canada and Mexico saw their respective currencies fall as much as 1.4%. However, Mark Cudmore, Markets Live Strategist, suggested that the initial cautious stance on tariffs points to a more drawn-out approach rather than immediate escalation, which could benefit global stock markets and lead to further weakness for the dollar.
Optimism about a potential deal between Trump and Chinese President Xi Jinping has also been growing. The two leaders held a phone call last week that Trump described as “very good,” sparking hopes of easing trade tensions. However, the Chinese economy, facing a more significant reliance on exports compared to Trump’s first term, remains more vulnerable to trade disruptions.
As global markets reacted to Trump’s executive orders, the Bloomberg Dollar Index initially slid more than 1% on Monday, only to regain momentum later. Meanwhile, U.S. Treasury yields fell by 10 basis points in Asia on Tuesday as traders adjusted inflation expectations in light of the uncertainty surrounding trade policies.
While Trump’s failure to implement immediate tariffs on China was seen as a positive for investors, the uncertainty remains high, given his history of policy reversals. Trump suggested he could impose tariffs on Chinese goods if Beijing blocks the sale of TikTok, further complicating the outlook for Chinese assets.
“It’s not going to be one-way trade under Trump,” noted Christopher Wong, strategist at Oversea-Chinese Banking Corp. “Tariff developments will remain highly uncertain in terms of timing, scope, and the products involved. Essentially, it’s a lot of headline-driven trading for now.”
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