Hong Kong Rebounds, Shanghai Falls Amid US-China Trade Tensions

Hong Kong’s Hang Seng Index climbed 0.7 percent on Friday to close at 19,760.27, recovering from Thursday’s losses, while mainland Chinese markets posted sharp declines. The Shanghai Composite Index dropped 1.6 percent to 3,211.43, and Shenzhen’s benchmark fell 2.7 percent, with these contrasting performances highlighting the ongoing instability in Asian markets amid growing fears over U.S.-China trade tensions as President-elect Donald Trump prepares to take office later this month. Traders work on the floor at the New York Stock Exchange in New York’s Financial District Thursday, Jan. 2, 2025. Markets are awaiting Federal Reserve interest rate decisions later this month, which could signal the… Traders work on the floor at the New York Stock Exchange in New York’s Financial District Thursday, Jan. 2, 2025. Markets are awaiting Federal Reserve interest rate decisions later this month, which could signal the economic direction for 2025. AP Photo/Seth Wenig Why It Matters The fraught relationship between the U.S. and China continues to reverberate through global financial markets, influencing investment decisions and economic strategies. The concerns over trade relations stem from a history of tariffs, sanctions, and disputes that have strained the ties between the world’s two largest economies. During Trump’s previous administration, a trade war led to tariffs on hundreds of billions of dollars’ worth of goods, disrupting global supply chains. The uncertainty surrounding his return to power has reignited fears of similar policies that could once again roil international markets and hurt bilateral trade. Economic tensions have been exacerbated by geopolitical issues, including disputes over Taiwan and the South China Sea. China’s recent sanctions on U.S. defense companies following arms sales to Taiwan underline the deepening divide. Additionally, long-standing concerns about technology and intellectual property theft have led to increased scrutiny of Chinese firms, such as drone-maker DJI, which faces a potential ban in the U.S. What to Know China’s markets wrapped up the first week of 2025 in negative territory as investors worried about potential protectionist measures and tariff hikes under the incoming U.S. administration. Hong Kong’s gains were led by technology and finance sectors, reversing earlier losses. In contrast, mainland Chinese markets were weighed down by investor pessimism. A recent survey showed slowing factory activity and weakening business sentiment in China, further compounding the market’s struggles. South Korea’s Kospi index rose 1.8 percent, supported by tech companies including SK Hynix and Samsung Electronics. Japan’s Nikkei remained closed for the New Year holiday. Meanwhile, European markets mirrored the mixed performance, with Germany’s DAX falling 0.3 percent and France’s CAC 40 declining 0.7 percent. Britain’s FTSE 100 edged 0.1 percent lower. The U.S. stock market showed modest optimism. Futures for the Dow Jones Industrial Average and S & P 500 indicating small gains—the S & P 500 previously slipped 0.2 percent on Thursday, marking its fourth consecutive day of losses and capping a strong 2024 on a subdued note. However, inflation concerns and the Federal Reserve’s forthcoming interest rate decisions loom large. Currency traders watch monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, Dec. 13, 2024. South Korea’s Kospi gained 1.8 percent, driven by strong performances in tech… Currency traders watch monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, Dec. 13, 2024. South Korea’s Kospi gained 1.8 percent, driven by strong performances in tech sectors, while Japan’s Nikkei remained closed for the New Year holiday. AP Photo/Ahn Young-joon, File What People Are Saying Zhang Xiaogang, a spokesperson for China’s Defense Ministry, said at a news conference last week: U.S. actions are “hyping up the so-called threat from China to justify increased military spending.” He added, “This fully exposes the belligerent nature of the U.S. and its obsession with hegemony and expansion.” Xi Jinping, President of China, said in his New Year message: “We have adopted a full range of policies to make solid gains in pursuing high-quality development. China’s economy has rebounded and is on an upward trajectory,” according to the official Xinhua News Agency. Sam Stovall, chief investment strategist at CFRA, said regarding Wall Street: The stock market’s record-breaking turn in 2024 was “certainly much better that what most people on Wall Street, myself included, thought we would get this year [ …] Historically, a negative Santa Claus rally still resulted in an average gain of almost six percent in the subsequent year.” What Happens Next Markets will closely monitor policy developments in Washington as Trump’s inauguration approaches on Jan. 20. His administration’s trade and tariff policies are expected to play a pivotal role in shaping the global economic landscape. Similarly, the Federal Reserve’s interest rate decisions later this month will provide critical guidance for investors. China’s domestic policy measures, including potential economic stimulus efforts, will also be watched closely. However, with rising geopolitical tensions and uncertainties over U.S. actions, volatility in Asian and global markets is likely to persist for now. This article includes reporting from The Associated Press