HONG KONG: Stock Market Struggles Amid Trade War Uncertainty
Struggling Asian markets as factory activity in China takes a hit due to trade war.
In Hong Kong, stocks took a lackluster start on Wednesday, April 30, as investors grappled with the aftermath of Wall Street's rally. Steamrolling through the fray was the disheartening news that Chinese factory activity shrank at an alarming pace this month, its fastest decline in nearly two years, prompted by the ongoing trade war between the U.S. and China.
Despite some recovery from the setbacks triggered by U.S. President Donald Trump's "Liberation Day" tariffs announcement in April, the economic landscape remains shrouded in mystery as countries scramble to forge deals to avert the worst of Washington's ire.
China has opted not to negotiate directly with the U.S., instead escalating the conflict by imposing tariffs of up to a staggering 145% on American goods--met with retaliatory 125% tolls of its own.
This economic tit-for-tat began to bear fruit in April, with data revealing a sharp contraction in manufacturing activity, the most extensive decrease since July 2023--a month following a 12-month high.
This slump in activity followed Chinese exports soaring over 12% in the preceding month, a mad rush to beat the crushing tariffs.
Experts predict things will only worsen.
"The weak manufacturing PMI in April is a direct consequence of the trade war," Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, explained in a note.
"The macro data in China and the U.S. will weaken further ... as the trade policy uncertainty delays business decisions," he added.
It's essential to recognize that this trade conflict isn't merely impacting immediate production activities but also fostering critical structural pressures. For example, Chinese firms face mounting scrutiny when manufacturing overseas[1], with the U.S. scrutinizing third-country production chains that might involve Chinese components or investments[1].
This increased oversight could motivate Chinese manufacturers to relocate certain production lines abroad to avoid tariffs while simultaneously grappling with tighter restrictions on technology transfers, even outside China[1]. However, it's essential to note that the recently enriched analysis by CSIS does not quantify recent month-to-month changes in domestic Chinese factory output, suggesting that the impact may be more of a strategic nature (e.g., supply-chain restructuring) rather than direct contractions in immediate production activity[1].
[1] - These insights are enriched perspectives derived from a CSIS analysis, focusing on long-term strategic shifts rather than short-term monthly data. The analysis emphasizes critical structural pressures facing Chinese firms and highlights that they may face heightened scrutiny over overseas manufacturing, increased scrutiny of third-country production chains, and tighter restrictions on technology transfers, even when operating abroad. Additionally, the analysis suggests that the current impacts may be more strategic (e.g., supply-chain restructuring) than direct contractions in immediate production activity, with Chinese manufacturers potentially relocating certain production lines abroad to circumvent tariffs.
- The stock market in Hong Kong started the day on a lackluster note on Wednesday, April 30, as investors continued to grapple with trade war uncertainty.
- The ongoing trade war between the U.S. and China has led to Chinese factory activity shrinking at an alarming pace this month, marking the fastest decline in nearly two years.
- While there has been some recovery from the setbacks triggered by U.S. President Donald Trump's tariffs announcement in April, the economic landscape remains shrouded in mystery.
- The trade war has prompted China to impose tariffs of up to 145% on American goods, a move met with retaliatory 125% tariffs by the U.S.
- In 2023, there was a sharp contraction in manufacturing activity in China, the most significant decrease since July of the same year, which followed a 12-month high.
- Experts predict that the economic situation will worsen due to the ongoing trade policy uncertainty, which delays business decisions.
- The trade conflict is not only impacting immediate production activities but also fostering critical structural pressures, such as increased scrutiny over overseas manufacturing, review of third-country production chains, and tighter restrictions on technology transfers, even outside China.
