(Bloomberg) -- Chinese stock traders were given a fresh reminder of deepening financial and technological decoupling between the world’s two largest economies following Donald Trump’s move to limit US investments into the Asian nation.
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Equities whipped around in morning trade as traders responded to a flurry of headlines. The Hang Seng Tech Index erased an earlier loss of 4.4% to edge higher. Shares of Alibaba Group Holding Ltd. and JD.com Inc. also trimmed declines to less than 3%.
Trump calling for fresh scrutiny on foreign companies listed in the US renewed geopolitical risks that investors had largely downplayed this year. Some investors, however, saw the dip as an opportunity to buy on bets that China’s tech rally will continue. A report on Tuesday that Trump’s team was looking to add more restrictions on Chinese chipmakers added to that conviction, with shares of Semiconductor Manufacturing International Corp. erasing an earlier loss.
“I think today’s moves seem to be more local positioning rather than a fundamental shift in onshore sentiment — the market is still digesting the Trump memo,” said Billy Leung, a senior investment strategist at Global X ETFs. He added that the memo’s “immediate impact on corporate fundamentals remains limited.”
Chinese internet megacaps have been on a tear this year, winning back investor favor after DeepSeek gave them confidence on the industry’s growth potential. Tuesday’s market swings, however, serve as a reminder on how quickly sentiment can turn following a sharp valuation re-rating of the cohort.
China Vs US
Tuesday’s Hong Kong trading and Monday’s US selling exposed a widening gap between the valuation of shares listed in the two markets. Alibaba’s ADRs traded at A 7.6% discount to its Hong Kong listing on Monday, the widest since May 2022, Bloomberg-compiled data shows. That compares with around 0.1% discount on a five-year average.
The losses were bigger in ADRs as Trump took aim at a common structure — known as “variable interest entity” — that Chinese firms use to list on American exchanges.
Read: Trump Targets China With Biggest Salvo So Far in Second Term
The memo also revived an issue related to the accounting practices of some foreign firms, saying the US government would ensure its rules are being adequately followed. Investors were reminded of the incidents in 2022, when US scrutiny over Chinese firms led to fears of forced delistings from American exchanges. The two sides eventually reached a compromise after US officials gained further access to audit documents on companies in China and Hong Kong.