China’s market rally faces test as U.S. trade rift flare: ‘much more difficult couple of weeks now’

China’s stock market rebound may be showing signs of strain as renewed U.S.-China trade tensions threaten to derail investor optimism. After months of relative calm, Washington’s fresh warnings over Beijing’s rare earth export controls and renewed trade tensions have revived fears of another tit-for-tat trade cycle.

Chinese shares had recently rallied to a multi-year high on expectations of government stimulus and a recent inflow of foreign capital into Chinese equities. Mainland China’s benchmark CSI 300, which tracks major stocks in Shanghai and Shenzhen, rallied almost 20% since the start of the year to Oct. 9, while the Hang Seng Index surged around 33% in the same period.

However, the possibility of that rally continuing was predicated on stability in geopolitical risk, especially on trade. With tariff rhetoric back at the forefront, analysts warned sentiment could quickly unravel. Both indexes lost over 2% on Monday.

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