Shanghai Stocks' 9-Month High: A Sino-US Trade Truce or a Fleeting Rally?

The Shanghai Composite Index has surged to a 9-month high, climbing above 3,450 points in June 2025, fueled by a fragile Sino-US trade truce and optimism around China's tech-driven growth. Yet, beneath the surface, unresolved tariff disputes, profit headwinds, and macroeconomic risks cloud the sustainability of this rally. This article dissects the technical, fundamental, and geopolitical forces shaping the market, offering a roadmap for investors seeking to navigate this volatile environment.

The Trade Truce: A Lifeline or a Distraction?

The U.S. and China's May 2025 agreement to reduce tariffs—from 145% to 30% on Chinese goods and 125% to 10% on U.S. goods—has provided a temporary reprieve. The 90-day “truce” has eased immediate fears of escalating trade wars, allowing equities to rebound. However, the deal is narrow in scope: it suspends tariffs but fails to resolve structural issues like U.S. export controls on semiconductors or China's rare earth restrictions.

The truce's fragility is underscored by its expiration in August 2025. Unless extended, tariffs could revert to punitive levels, reigniting market turmoil. Analysts at the World Bank warn that global growth forecasts have been cut to 2.3% for 2025 due to trade-related headwinds, suggesting the truce's benefits are limited to the short term.

Technical Indicators: Resistance and Volatility

From a technical perspective, the Shanghai Composite faces critical resistance at 3,500 points—a level it last breached in late 2024. Recent consolidation around 3,450 suggests traders are awaiting clarity on trade negotiations and corporate earnings.

The RSI has flirted with overbought territory, signaling potential near-term corrections. Additionally, low volume during recent rallies hints at cautious investor sentiment—a warning sign for sustained momentum.

Fundamental Catalysts: Tech and EVs Lead the Charge

The rally is not uniform: sectors tied to AI innovation and electric vehicle (EV) supply chains have outperformed.

1. AI and Semiconductors:
   China's tech firms, including chipmakers like Semiconductor Manufacturing International Corporation (SMIC), have benefited from reduced tariffs on advanced computing hardware. The U.S. easing of restrictions on AI chip exports has also bolstered optimism around cross-border collaboration.

2. EV Demand:
   EV stocks, such as BYD and NIO, have surged as global demand for electric vehicles remains robust. A BloombergNEF report estimates EV sales could hit 50 million units annually by 2040, driven by falling battery costs and regulatory mandates.

Risks: Tariffs, Profits, and Global Demand

Despite sectoral strengths, three risks threaten to derail the rally:

1. Tariff Volatility:
   The U.S. retains a 30% tariff on Chinese goods, and new Section 232 duties on steel/aluminum derivatives (e.g., appliances) add complexity. A breakdown in August's talks could trigger renewed selling.

2. Profit Declines:
   China's industrial profits fell 9.1% in May 2025—the sharpest drop since late 2024—highlighting weak domestic demand. Even tech firms face margin pressures as input costs rise.

3. Global Slowdown:
   U.S. GDP grew just 1% in Q1 2025, with a 50% chance of recession by mid-2026. Slower global growth could dampen EV and tech demand, especially in export-reliant sectors.

Investment Strategy: Selective Exposure, Hedged Bets

Investors should adopt a nuanced approach:

• Buy the dip in tech/semiconductors:
  Companies like SMIC and Huawei (indirectly via supply chain partners) offer long-term growth if trade tensions ease. However, set tight stop-losses near the 50-day MA.

• Focus on EV supply chains:
  Lithium miners and battery firms (e.g., CATL) are leveraged to EV adoption, but monitor global demand trends closely.

• Avoid cyclical sectors:
  Steel, construction, and real estate remain vulnerable to trade tariffs and weak domestic demand.

• Hedge with volatility plays:
  Use inverse ETFs or options to protect gains if macro risks materialize.

Conclusion: A Truce, Not a Ceasefire

The Shanghai Composite's 9-month high reflects a temporary truce in the trade war, not a lasting peace. While tech and EV sectors offer growth opportunities, investors must balance optimism with caution. The August tariff deadline looms as a critical test: a failure to extend the truce could erase recent gains and reignite volatility. For now, selective bets on innovation-driven sectors, paired with risk management, are the safest path forward.

Data as of June 2025. Past performance is not indicative of future results. Always consult a financial advisor before making investment decisions.