Investors are worrying about a potential escalation in the trade war between the United States and China, leading to a sharp drop in the Chinese stock market on Monday, October 13th. Chinese bond futures, on the other hand, saw an increase.
By lunchtime on Monday, blue-chip stocks in the Shanghai and Shenzhen 300 Index fell by 1.8%, while the Shanghai Composite Index dropped by 1.3%. The Hang Seng Index in Hong Kong also experienced a decline of 3.5%, with the Hang Seng Tech Index falling by 4.5%. Tech giants like Alibaba Group Holding Limited and Tencent Holdings Limited saw significant drops in their stock prices. The Shanghai and Shenzhen 300 Index, which serves as a benchmark for the mainland stock market, at one point fell by 2.7%. The People’s Bank of China adjusted the daily reference exchange rate of the renminbi to its highest level since November last year to maintain stability in the currency.
Despite the general sell-off in the stock market, the Chinese rare earth industry, central to the escalating trade tension, saw a rise of over 4% in early trading. Overseas rare earth stocks also experienced significant gains.
Spot gold rose by 0.9%, continuing its record-breaking surge and staying above $4,000 per ounce.
Last week, US President Trump announced a 100% tariff increase on Chinese goods in response to Beijing’s export controls on key minerals. This move serves as a reminder that any trade truce agreement between the US and China could be fragile. The continued deterioration of US-China relations has once again raised doubts about the investment value in China.
According to a report by Reuters, Ben Bennett, Head of Asian Investment Strategy at L&G Asset Management in Hong Kong, stated, “President Trump’s reminder underscores the many uncertainties in the market.”
The tense trade situation between the US and China has dampened overall market confidence globally. Even though Japan and the US had light trading on Monday due to public holidays, market volatility continues to escalate.
Oriano Lizza, Sales Trader at CMC Markets in Singapore, believes that the market may be in the process of digesting how long this storm will last. He said, “Therefore, I think this uncertainty is currently keeping the market in a state of high tension and fragility.”
The 30-day expected volatility index tracking the Hang Seng Index surged by 30%, reaching its highest level since April 2025.
Chinese 10-year government bond futures rose on Monday, indicating that investors are seeking safe-haven assets.
On Sunday, the Beijing authorities expressed discontent with Trump’s new tariff increase but clarified that their rare earth export controls were not an export ban, and they did not announce any new tariffs on American products.
Hong Hao, Chief Investment Officer at Lotus Asset Management, stated, “This measure is a move to ease tensions and will alleviate the downside risks in the Chinese market.”