Hi YXI friends,

Having enjoyed a relentless rally before and (long) after the Chinese New Year, Chinese equities finally started to cool last week. Today, Trump’s new 10% tariffs on China take effect, in additional to the original 10% implemented in February.

China has promptly retaliated with 15% tariffs on chicken, wheat, corn, and cotton imports from the US, alongside with adding 15 American companies to its export control list.

Will Chinese equities roll over? Today, we provide an overview of the situation, an update on our outlook for KWEB and FXI, an earnings review for Alibaba, plus the technical analysis on PDD and JD.

Let’s dive in!

Table of Contents

• 1. 10%+10% On China

• 2. KWEB, FXI

  • The Macro Context

  • KWEB Technical Analysis

  • FXI Technical Analysis

• 3. Alibaba (BABA) Earnings Review

• 4. PDD, JD Technical Analysis

  • PDD Price Analysis

  • JD Price Analysis

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. 10%+10% On China

A Quick Recap

On February 4, 2025, Trump’s administration implemented a blanket 10% additional tariff on all Chinese imports. This meant if the Chinese imports had already been charged a 20% tariff, it would go to 30%, but if the goods had no tariffs originally, they would now see a 10% new tariff.

While KWEB sold off on the previous two trading days, it actually moved up by 20% after the tariff implementation, between February 4th and 20th.

Why? Part of it was because investors saw Trump’s tariffs primarily as negotiation tools, after the White House postponed Canada’s and Mexico’s tariffs a day later. Part of it was driven by China’s buzz around its own AI boom driven by DeepSeek’s success. Finally, Chinese equities were helped by lower US bond yields and a weaker US Dollar.

New Tariffs

Today (March 4th), an additional 10% tariffs are being implemented on all Chinese imports, taking the total to 20%. Canada and Mexico are also seeing the 25% tariffs that were initially delayed in February being implemented today. Trump is also planning a 25% tariff on EU auto imports.

While China’s 20% is still well below the 60% that Trump promised during his Presidential campaign, it shows that Trump is willing to stack the tariffs over time for maximum timing impact.

The longer these tariffs wear on, the more pessimistic investors will become towards the Chinese economy, which places a big reliance on exports due to its overcapacity.

The silver lining is that instead of driving inflation within US, because Chinese imports deflate over time, the tariffs should really reduce the pace of deflation instead.

What are Trump’s goals behind the tariff aggression?

There are of course geopolitical drivers, including considerations around Ukraine and Taiwan, which I won’t go into detail here.

There is also a drive to genuinely get US companies manufacture inside America. Just last week, Apple announced they “will spend more than $500 billion in the US. over the next four years”.

Finally, Trump likely wants to negotiate better terms for US exports, especially in Food and Energy, e.g. getting China to take in less Iranian and Russian oil but more from the US.

2. KWEB, FXI

The Macro Context

USDCNH vs KWEB (https://www.tradingview.com/x/nfA3MsPL/)

KWEB more or less trades in an inverse relationship to USDCNH, which is driven by the US / China yield spread plus the extra demand for USD.

But we observe that the latest pullback in fact started almost a week before Trump’s tariff announcement on February 27. USDCNH bounced from a local low on February 21, coinciding with Alibaba’s post-earnings. This has put pressure on Chinese equities, despite falling US yields.

Fortunately, USDCNH is still trading below its long-term resistance at $7.34. My view is that as long as USDCNH stays below this key level, near-term pullbacks in Chinese equities will be only corrective in nature (i.e. temporary).

We should also be wary that China has yet to make another set of big stimulus measures from the government or the PBOC. The underlying economy is still in a very messy state. We likely need this announcement in the near future to sustain the latest rally.

KWEB Technical Analysis

KWEB Daily (https://www.tradingview.com/x/ilWTE4DK/)

My primary view is unchanged since the last update, which is that I expect a wave ii pullback here into the $29-30 region, before KWEB moves higher. KWEB has so far cooperated with this expectation, so we simply continue monitoring from here.

The more bearish alternative is highlighted in red, which can result in a lower downside target below $26. To me, this is a less probabilistic view, but one we cannot rule out yet.

FXI Technical Analysis

FXI (https://www.tradingview.com/x/XoHkJIPW/)

FXI and KWEB trades very similarly in terms of the daily directions. I also favour a pullback for FXI here into $30-31.5.

3. Alibaba (BABA) Earnings Review

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