China’s return from the Golden Week holiday has sparked a major shift in global politics, impacting stock markets like the Shanghai Composite and Shenzhen, which dropped nearly 1% and 2%, respectively. New export controls on lithium-ion batteries will require government approval starting November 8, showing China’s stronghold in the clean-energy market and its strategic stance against potential tensions with the U.S. Tighter inspections on chip imports at key ports are now in place, specifically affecting Nvidia’s processors for China. This limits access to advanced AI technology, challenging Chinese startups to be innovative while adapting to global changes. Additionally, new restrictions on rare earth exports strengthen China’s power in the tech race.

Global Market Dynamics

Markets are feeling the effects of these power struggles. The Hang Seng Index has risen by 38% this year, while the S&P 500 is up just 15.9%. Global stocks overall have increased by over 20%, indicating that investors are looking past geopolitical issues, yet the ongoing tensions create anxiety and could disrupt supply chains and manufacturing. As Trump and Xi get ready to meet at the APEC forum, recent export controls and sanctions underscore the growing economic strain. This situation has shifted from traditional trade disputes to a competition for technological leadership, where controlling technological resources shapes future trajectories. The landscape has shifted since the end of China’s Golden Week. We are currently seeing implied volatility returning to the market, with the Hang Seng’s volatility index surging nearly 20% this week. Geopolitical news is now a critical factor in our risk assessments, rather than mere background noise. With the November 8th deadline for battery export controls looming, this is the most pressing issue we are monitoring. Lithium carbonate futures have already jumped 15% in the last two weeks, reminiscent of the supply crunch in 2022. Buying call options on battery materials from companies like Ganfeng Lithium or investing in broad ETFs in the clean energy supply chain seems like a smart move for potential disruptions ahead. Conversely, the pressure on semiconductors is increasing as restrictions on silicon get tighter, which could hurt semiconductor stocks heavily reliant on China. This situation feels similar to the impact of the U.S. CHIPS Act from 2022, but its effects are more immediate. We are considering buying puts on select semiconductor indices as a hedge because we expect disappointing guidance from these companies.

Focus Shift in Market Strategies

We should also note the unusual gap where the Hang Seng Index is up 38% this year, significantly outperforming the S&P 500. This surge seems fragile, relying more on liquidity than on strong fundamentals in today’s market. This may be the last chance to buy protective puts on China-focused ETFs before the upcoming APEC summit. The upcoming meeting between Trump and Xi poses a major turning point for the market, potentially leading to significant volatility. We are looking into straddles on key indices to take advantage of the volatility we anticipate, as any handshake or disagreement could ripple through the market. Ultimately, our strategy is shifting from focusing on traditional economic indicators to monitoring supply chain metrics. The number of export permits approved by Beijing might soon become as critical to our trading choices as inflation data from Washington. This situation is no longer simply a trade war; it’s a new market reality where we trade in the flow of essential technology. Create your live VT Markets account and start trading now.

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