Hang Seng Index Rises as China Pledges Stimulus Amid US Trade War

US Markets Retreat as Tariffs Take Effect

US equity markets extended their losses from March 3 as new tariffs took effect on Canada, China, and Mexico. The Dow and the S&P 500 slid by 1.55% and 1.22%, respectively, on March 4, while the Nasdaq Composite Index slipped by 0.35%.

Canada responded with additional retaliatory measures. The Kobeissi Letter reported:

“BREAKING: Ontario is issuing a 25% export tax on electricity to the US, per WSJ. This impacts 1.5 million homes in Minnesota, Michigan, and New York, in retaliation to President Trump’s tariffs.

China also hit back, targeting the US agricultural sector with fresh levies.

Concerns about higher tariffs, pushing up US import prices, and driving inflationary pressures weighed on risk sentiment. Higher inflation may curb consumer spending, potentially delaying Fed rate cuts. The odds of a US recession in 2025 jumped to 43%, the highest since November, amid an escalation in the trade war.

Meanwhile, US Commerce Secretary Lutnick provided some relief, reportedly saying that Trump plans to roll back tariffs on Canada and Mexico. Trump had initially threatened an immediate increase in tariffs on Canada in response to its countermeasures.

Concerns about the US economy and tariff developments set the tone for the Asian session on Wednesday, March 5.

Beijing Sets 2025 Economic Growth Target

The third session of the 14th National People’s Congress entered its second day against the backdrop of rising US-China trade tensions. Beijing announced a 2025 economic growth target of around 5% and pledged additional fiscal support to counter deflationary pressures and the effects of higher US tariffs. CN Wire reported key measures, including:

• Special initiatives to boost consumption.
• Cut required reserve ratios and interest rates when appropriate.
• Issue special treasury bonds to support state-owned lenders in replenishing capital.
• Use monetary policy instruments to bolster property and stock markets.

Brian Tycangco, editor and analyst at Stansberry Research, commented:

“From 0.2% in 2024 Beijing aims for a 2.0% CPI in 2025. You won’t get there without massive stimulus. And Beijing appears to be pulling out all the stops to get to that target. Expect very loose monetary policy to continue for at least the next 6 months. While other nations are grappling with stubborn inflation and high stock market valuations, China is unleashing QE while still having one of the most undervalued markets.”

Hang Seng Index Advances on Beijing Pledges

In Asia, the Hang Seng Index advanced by 1.31% on Wednesday morning. Investors reacted to updates from China’s National People’s Congress. Despite tech stocks leading the rally, concerns over an escalating US-China trade war moderated gains.

Tech stocks led the rally, with the Hang Seng Tech Index rising 1.50%. Tech giants Alibaba (9988) and Baidu (9888) gained 0.16% and 1.06%, respectively.

Mainland China’s equity markets posted modest gains. The CSI 300 and the Shanghai Composite Index rose 0.06% and 0.03%, respectively. While Beijing’s stimulus measures supported sentiment, China’s Caixin Services PMI report revealed weak domestic demand, limiting further upside.

Nikkei Index Holds Steady as a Weaker Yen Offsets Trade Risks

Japan’s Nikkei Index edged up 0.01% on Wednesday morning. A weaker Japanese Yen sent the USD/JPY pair up 0.15% to 150, supporting demand for Japanese stocks. Yen weakness could boost company earnings and valuations.

Softbank Group (9984) advanced by 0.71%, while Nissan Motor Corp. (7201) was up 1.81%.

ASX 200 Drops as Banking Gold, Oil, and Tech Stocks Slide

Australia’s ASX 200 Index fell 1.12% on Wednesday morning, with banking, gold, oil, and tech stocks weighing.

• Financials: National Australia Bank (NAB) and Commonwealth Bank of Australia slid by 1.94% and 1.73%, respectively. Concerns about US tariffs and rising US Treasury yields weighed on sentiment.
• Commodities: Gold and oil stocks struggled. Northern Star Resources (NST) and Woodside Energy (WDS) saw losses of 2.82% and 1.12%, respectively. Gold prices trended lower on Wednesday, while crude oil prices tumbled overnight, pressuring energy stocks.
• Tech: The S&P/ASX All Technology Index declined by 1.05%, following the Nasdaq’s overnight losses.

Outlook: Key Risks and Opportunities

Looking ahead, market sentiment will hinge on tariff developments, US labor market data, China’s National People’s Congress, and central bank guidance.

In Asia, escalating US-China trade tensions may weigh on regional stocks. However, Beijing’s stimulus measures could help offset the economic drag.

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