China stocks shrug off US tariffs as they stage V-shaped recovery from 28-month low

China’s stocks rebounded from a 28-month low on Friday, led by gains in companies reliant on domestic consumers, even as US tariffs on US$34 billion worth of Chinese imports came into effect, kicking off what some observers believe is a deepening trade war between the world’s two largest economies.

The Shanghai Composite Index rose 0.5 per cent in a V-shaped comeback in afternoon trading, reversing an intraday loss of as much as 1.6 per cent that had dragged the benchmark down to the lowest level since February 2016. Hong Kong stocks also rebounded.

Consumer and health care companies helped with the recovery as traders began to load up on stocks they believe were least exposed to overseas sales. Agricultural producers also gained on expectations that Beijing will levy retaliatory tariffs on US goods from soybean to pork.

“The materialisation of US$34 billion of tariffs on both sides has led to market relief and a rebound in stocks, although the market is likely to remain volatile on expectations that Trump may launch new measures as early as in the coming week or so,” said Kingston Lin King-ham, director of securities brokerage AMTD.

At noon Beijing time, the 25 per cent tariff on Chinese goods ranging from farming equipment to semiconductors and aircraft parts came into effect. Duties on another US$16 billion worth of goods could be imposed in the next two weeks, US President Donald Trump said on Thursday.

He also hinted that the final value of the tariffs could eventually reach US$550 billion, a figure that exceeds China’s annual exports to the US.