Chinese Stocks Drop Amid Heightened Trade Tensions
Chinese stocks declined on Wednesday, their first trading session after the Lunar New Year holiday, as investors reacted to escalating trade tensions between the U.S. and China.
Market Performance
The CSI 300 Index fell 0.6%, while the Hang Seng China Enterprises Index dropped around 1% after a 3.5% surge the previous day. The downturn was triggered by reports that the US Postal Service was suspending inbound parcels from China and Hong Kong, following tariff exchanges between the two countries.
Trade Uncertainty
Market sentiment was weighed down by uncertainty over the ongoing trade dispute. While hopes remain for a deal, investors are reducing risk amid heightened tensions. The outlook for equity markets hinges on further tariff developments and China's economic recovery.
Holiday Spending
Despite the market decline, consumer spending appeared to improve during the holiday season. Box office receipts reached a record $1.3 billion, and passenger travel hit a single-day high on February 3. However, a private survey indicated a slowdown in services activity last month.
Info Tech Outperformance
The CSI sub-index for info tech stocks bucked the trend, rising almost 3%. This was driven by gains from technology companies benefiting from DeepSeek's artificial intelligence model, which has drawn praise for its competitiveness.
Yuan Support
The Chinese central bank continued to support the yuan by setting the daily reference rate at a level stronger than 7.2 per dollar, mitigating depreciation pressures arising from trade tensions. However, the onshore yuan still weakened initially before narrowing its loss.
Outlook
Analysts believe that tariffs may escalate further, potentially hindering economic stimulus. While sentiment towards China's tech sector may improve due to DeepSeek's advancements, the impact on profits is uncertain amid ongoing price competition.