China's stocks pare losses after early sell-off on fresh US trade war salvo

Market Overview - A sharp sell-off in China stocks was observed, but the market managed to trim early losses as investors reassessed the impact of renewed trade tensions between the U.S. and China [1] - The Shanghai Composite closed down 0.2% after an early drop of 2.5%, while the CSI300 Index fell by 0.5% [2] - In Hong Kong, the Hang Seng index initially tumbled 3.5% before ending down 1.5%, and the Hang Seng Tech index lost 1.8% [2] Sector Performance - Despite the broader market decline, China's rare earth sector surged over 6% to a record high, and semiconductor stocks gained 2.6% [2] Trade Tensions - President Trump announced additional 100% levies on China's U.S.-bound exports and new export controls on critical software, which are set to take effect by November 1 [3] - Trump later softened his stance, indicating that the U.S. did not want to "hurt" China [3] Market Sentiment - Analysts expect near-term volatility in Chinese stocks following a strong rally, with the Shanghai Composite hovering around a decade high before the recent retreat [4] - The Hang Seng index has increased by 30% so far this year [4] Strategic Insights - Morgan Stanley analysts view the recent actions by Beijing as a tactical escalation rather than a strategic decoupling, especially in light of a potential meeting between President Xi Jinping and Trump at the upcoming APEC summit [5] - Positive surprises in China's export and import data have contributed to improved investment sentiment [5] Investor Outlook - Investors are advised to remain focused and not be swayed by political headlines, with expectations that rationality will prevail in the market [6] - Market volatility is anticipated to remain high due to rising geopolitical tensions, with a significant spike in the Hang Seng's expected 30-day volatility index [7]