The threat of a revived trade war between Beijing and Washington has caused a sharp decline in Chinese stocks and weighed on the yuan. President Trump announced plans to impose massive tariffs on Chinese goods and additional restrictions on critical software. Chinese markets are expected to open under pressure on Monday, with a gauge of Chinese stocks listed in the US plunging more than 6% on Friday. The uncertainty surrounding the trade negotiations between the two countries may limit the impact on Chinese equities. Chinese government bonds, however, stand to benefit from the situation.

The ongoing tensions between Beijing and Washington are part of a negotiating strategy before the upcoming meeting between President Trump and President Xi. Both sides are engaged in a high-stakes negotiation, leading to increased market volatility. Despite the escalating trade tensions, Chinese equities were already considered overheated, with the MSCI China Index recording its longest winning streak since 2018. The uncertainty surrounding the trade negotiations and potential impact on the markets highlight the need for caution and a focus on fundamentals moving forward.

Read more at Yahoo Finance: China Markets Under Threat From Risk of Renewed US Trade War