Asian Stocks Decline as U.S. Increases Pressure on China

Asian markets experienced a downturn following President Donald Trump’s decision to limit Chinese investments and proceed with tariffs on Canada and Mexico. This move led investors to pull back from riskier assets. Additionally, the decline in U.S. stocks at the close of trading further dampened market sentiment.

At market open, equity indexes in Hong Kong and mainland China dropped, while a broader regional stock gauge fell for the second consecutive day. The yield on 10-year U.S. Treasuries slipped by two basis points to 4.4% in early Asian trading, while gold surged to a record high as investors sought safe-haven assets.

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Impact of Trump’s Investment Restrictions

Investor confidence took a hit after Trump issued a memorandum directing a key government committee to restrict Chinese investment in U.S. technology, energy, and other strategic sectors. This action threatens to reverse recent gains in Chinese tech stocks, which had rallied due to optimism surrounding DeepSeek and President Xi Jinping’s engagement with corporate leaders, including Alibaba’s Jack Ma.

The memorandum, signed on Friday, commits to using “all necessary legal instruments” to prevent Chinese-affiliated entities from investing in critical U.S. industries such as:

• Technology
• Infrastructure
• Healthcare
• Agriculture
• Energy
• Raw materials
   

This move strengthens the authority of the Committee on Foreign Investment in the United States (CFIUS), a panel that reviews foreign acquisitions of U.S. companies and assets, in blocking Chinese investments.

Chris Weston, head of research at Pepperstone Group Ltd., stated that Trump’s directive triggered a sharp reduction in long positions, which will impact the Hong Kong equity market at opening. “The key focus will be how China and other Asian traders react after the initial downturn,” he noted.

Stock Market Reactions

A key index of Chinese stocks in Hong Kong tumbled 2.8%, with Alibaba Group Holding Ltd. plunging as much as 7.9% in Hong Kong trading. The company’s American depositary receipts fell 10%, marking their steepest decline since October 2022.

In contrast, Japanese trading houses such as Mitsubishi Corp. and Marubeni Corp. saw gains on Tuesday after Berkshire Hathaway Inc. expressed its intention to increase its ownership in these companies in an annual shareholder letter released Saturday.

Meanwhile, in South Korea, the central bank lowered its seven-day repurchase rate by 0.25 percentage points to 2.75%—a widely expected move.

Geopolitical Tensions and Trade Policies

Beyond investment restrictions, Trump intensified tensions with U.S. allies over Ukraine. He withdrew Washington’s condemnation of Russia’s 2022 invasion at the United Nations and among Group of Seven nations, signaling his intent to negotiate an end to the war under terms favorable to Moscow.

On trade, Trump confirmed that tariffs on Canada and Mexico, scheduled to take effect next month, remain on track and are advancing “very rapidly” after an initial delay.

Chris Larkin from E*Trade at Morgan Stanley commented that this week could be crucial for a stock market that has largely moved sideways for over two months.

U.S. Market Performance and Investor Sentiment

U.S. markets ended the day lower:

• S&P 500 fell 0.5%
• Nasdaq 100 dropped more than 1%
• Dow Jones Industrial Average fluctuated throughout trading
   

Ahead of its earnings report, Nvidia Corp. declined 3.1%, while hedge funds reduced their net exposure to “Magnificent Seven” stocks to the lowest level since April 2023.

Investors have increased bets on market volatility, anticipating Nvidia’s earnings report on Wednesday as a key event. The U.S. benchmark index has gone over 30 sessions without consecutive declines of more than 1%.

Mark Hackett from Nationwide observed that the market is currently in a consolidation phase due to investor uncertainty and seasonal February weakness. However, he emphasized that strong macroeconomic conditions, solid earnings, and positive fund flows could drive stocks higher once momentum returns.

Economic Outlook and Key Upcoming Events

Looking ahead, the Federal Reserve’s preferred inflation measure is set for release on Friday. Analysts expect it to slow to its lowest level since June. However, the sluggish progress in controlling inflation may keep Fed officials cautious about future rate decisions.

Clark Bellin from Bellwether Wealth suggested that if Nvidia reports strong earnings and inflation data comes in softer than expected, stocks could gain upward momentum.

Commodities Market Performance

In commodities trading:

• Oil prices edged higher in a session marked by geopolitical uncertainties, including Russia-Ukraine peace talks and potential increases in Iraqi crude production.
• Gold prices remained near their recent record high, with exchange-traded funds (ETFs) backing the metal seeing renewed investor interest.