Trade war jitters hit US stock market while Chinese stocks win big. What’s behind the anomaly?

While financial markets around the world are feeling the heat of Donald Trump's trade wars, fueling concerns that they could potentially lead to a global economic fallout, Chinese stocks have managed to withstand the cautionary signals sent by the White House.

Despite being targeted by U.S. President Donald Trump, who has imposed an additional 20% tariff on all Chinese goods and is threatening further action, Chinese stocks remain unscathed. Strong support from overseas investors, according to market experts, is aiding the rally as they redirect funds to Beijing, attracted by reasonable valuations, making stocks in the world’s second-largest economy their favorite picks.

According to reports, funds are being pulled out of emerging markets, including India, and redirected to China, as a strong rally in domestic equities in recent years has driven valuations to scorching levels. Meanwhile, Chinese markets remained on the sidelines during this period as the country struggled to revive its economy, which was negatively impacted by the COVID-19 pandemic, making its valuations more attractive to global investors.

A gauge of Chinese stocks listed in Hong Kong has surged 20.70%, making it one of the best-performing indexes in 2025. Looking at individual stocks, Alibaba is up 65.5% in less than three months of the current calendar year, while Tencent, the maker of the WeChat app, has soared 26% so far in 2025.

On the other hand, growing fears of a slowdown in the U.S. economy, caused by Trump's trade policies and his moves to slash federal government spending, have challenged assumptions about the appeal of U.S. stocks, which have vastly outperformed most of their global peers since 2021.

Since Trump began his second term on January 20, the S&P 500 has declined nearly 8%, while the Dow Jones has dropped 6.2%, indicating investor dissatisfaction with his policy decisions. However, the president believes these measures will ultimately bring prosperity to the American economy, though at the cost of short-term pain on growth.

The emergence of Chinese AI startup DeepSeek, which shocked the world earlier this year by claiming it had developed AI models rivaling Western peers at a fraction of the development and operating costs, also stalled the rally in U.S. tech giants, which accounted for the majority of the rally in Wall Street. 

Recently, a Chinese startup introduced Manus AI, a "general" AI agent that gained attention on social media as the company claimed it could autonomously perform tasks such as data analysis. Manus AI is currently in testing for invited users, according to media reports.

Betting on revival

Investor interest has also been driven by expectations of a revival in the Chinese economy, following significant steps taken by policymakers, who are prioritizing the expansion of domestic demand this year as they seek to cushion the impact of the Trump administration's tariffs on the country’s crucial export sector. 

Beijing has not followed the U.S. or other countries in handing out cash to consumers, but falling consumer confidence is prompting policymakers to reconsider their stance. On Sunday, China's State Council unveiled what it called a "special action plan" to boost domestic consumption, featuring measures such as increasing residents' income and establishing a childcare subsidy scheme.

At the annual parliamentary meeting earlier this month, China's leaders pledged stronger fiscal and monetary support for the economy, with a particular emphasis on spurring domestic consumption and setting a growth target of around 5% for this year.

UBS expects the Chinese government to ramp up additional policy stimulus throughout 2025 to offset the impact of external shocks, such as additional U.S. tariffs, on domestic imports, Reuters reported.

Analysts turned bullish on Chinese stocks

Global brokerage firms, including Citigroup and Goldman Sachs, have become more optimistic about Chinese stocks amid a downturn in U.S. equities due to uncertainty surrounding Donald Trump's economic policies.

Citigroup Inc. strategists downgraded U.S. equities to neutral from overweight while upgrading China to overweight, stating that U.S. exceptionalism is at least on pause.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.