(Bloomberg) — Asian stocks trimmed gains as an AI-fueled rally in Chinese technology shares faded and investors remained cautious due to tensions between the US and European Union over tariffs and the war in Ukraine.
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A gauge of Asian shares rose 0.3%, after reaching the highest level since November, while equities in Hong Kong and an index of technology stocks retreated. Treasury futures edged lower with cash trading closed globally due to Presidents’ Day in the US. European equity index futures pointed to a muted open.
The volatile start to the week comes after DeepSeek’s breakthrough in artificial intelligence had spurred a more than $1 trillion rally in Chinese shares. Investors are also monitoring a ratcheting up in tensions between the US and Europe after President Donald Trump’s tariff plans sparked threats of retaliation. German and French bond futures dropped amid concern European governments may have to boost military spending.
Investors had piled into technology shares, especially in China, after optimism over DeepSeek’s outlook. A meeting between President Xi Jinping and business figures including e-commerce icon Jack Ma was also seen as catalyst for gains.
“The growth momentum in China could see some new lease on life” given what’s happening in AI,” said Tai Hui, Asia-Pacific chief Market strategist at JPMorgan Asset Management. “The China-AI story is continuing to develop.”
Goldman Sachs Group Inc. strategists raised their MSCI China index target on optimism over the country’s technological advancements. Meanwhile, investor Michael Burry had rolled back on some of his investments in Chinese tech stocks just before DeepSeek’s breakthrough.
US President Donald Trump’s tariff plans sparked threats of retaliation while Vice President JD Vance attacked longstanding European allies at a security conference at the weekend. Plans to negotiate an end to the war in Ukraine have left the bloc on the sidelines.
Investors may demand higher yields on government debt across the European region on concern officials will seek to beef up military investment. Upgrading defense and protecting Ukraine may cost Europe’s major powers an additional $3.1 trillion over 10 years, according to Bloomberg Economics estimates. The euro was rangebound on Monday.
“The scope for a further rally in European FX on a potential Russia-Ukraine ceasefire deal is limited,” Barclays Plc analysts led by Sheryl Dong wrote. “Provisional details are negative for Europe’s security and the war premium is low.”
