China's stocks sink on fresh US trade war salvo

By Samuel Shen and Summer Zhen HONG KONG/SHANGHAI (Reuters) -China stocks fell sharply in volatile trade on Monday as a renewed trade war between Washington and Beijing hit risk appetite and spurred profit-taking, pulling shares from their decade highs. The blue-chip CSI300 Index declined 1.8% and the Shanghai Composite was down 1.3% by lunch break. In Hong Kong, the Hang Seng benchmark slumped 3.5% and the Hang Seng Tech index lost 4.5%. Defying the broader selloff, however, China's rare earth sector, which is at the centre of revived trade tensions, jumped more than 4% to a record high in the morning session, while semiconductor stocks also gained. U.S. President Donald Trump on Friday unveiled additional levies of 100% on China's U.S.-bound exports, along with new export controls on critical software by November 1, in a reprisal against China curbing its critical rare earth exports. "President Trump reminded everyone that there are lots of uncertainties for markets," said Ben Bennett, head of investment strategy for Asia at L&G Asset Management, based in Hong Kong. He expects near-term wobbles in Chinese stocks after the strong rally of the past few months. The news hit broader confidence in global markets, although moves were exacerbated by thinned trade with both Japan and the U.S. closed for public holidays on Monday. "I think the market is probably looking to digest how long this saga will go on for…so that's the sort of unknown which I think leaves the market on tenterhooks and very fragile at the moment," said Oriano Lizza, sales trader at CMC Markets in Singapore. VOLATILITY SPIKES An index tracking expected 30-day volatility in the benchmark Hang Seng surged 30% to its highest level since April 2025. China's 10-year bond futures rose on Monday, indicating the rush for safe-havens. The yuan clawed back some of the losses that followed Trump's announcement on Friday, helped by stronger central bank guidance. An upbeat surprise in China's exports and imports data failed to lift broadly wary investment sentiment. At the same time, investors and analysts believe the sell-off is likely to be less severe than the panic-selling seen in April, when Trump kicked off a global trade war with sweeping tariffs across-the-board. Wang Yapei, a Shanghai-based hedge fund manager, expects the turbulence to be short-lived, betting China and the U.S. will eventually work through negotiations, as "the cost of large-scale conflict is too high for both powers." Beijing described Trump's latest tariffs on Chinese goods as hypocritical on Sunday but clarified that its export control is not an export ban and stopped short of imposing new levies on U.S. products. "This is a de-escalation move and will cushion the downside for Chinese markets," said Hong Hao, chief investment officer at Lotus Asset Management. Investors are likely to rotate from growth to value stocks in the coming weeks, he added. Trump appeared to seek to ease tensions in a social media post overnight, saying "The U.S. wants to help China, not hurt it." Charles Wang, chairman of Shenzhen Dragon Pacific Capital Management Co, said growing geopolitical uncertainty means China will likely further ease monetary policy to aid economic growth, supporting stocks. TACO AGAIN? China Merchants Securities said geopolitical tensions benefit Chinese sectors including artificial intelligence, robots, defence, innovative drugs and chipmaking. "Any correction would give long-term investors a chance to buy the stocks at lower prices," the brokerage said. But Trump's proposed 100% tariff hike would hurt export-oriented sectors such as electric motors, electrical equipment and nuclear reactors, according to Xiangcai Securities. Many analysts, however, think the chance of a triple-digit tariff is slim. "This statement is more of Trump's signature negotiation tactic—applying maximum pressure to bolster bargaining leverage and force concessions during trade talks," Changjiang Securities said in a report.  "It will likely again play out as TACO (Trump Always Chickens Out)." Lu Ting, Nomura's Chief China Economist, said continued economic and trade clashes between the two superpowers were inevitable. "However, in the near term, both sides are still reliant on one another…so we believe this latest escalation is more about posturing for incoming negotiations and meetings," he said, seeing "a decent chance" of a Xi-Trump in-person meeting during the APEC annual summit in South Korea later this month. (Reporting by Summer Zhen in Hong Kong and Samuel Shen in Shanghai, Additional reporting by Rae Wee; Editing by Sam Holmes)

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