China’s return post-Golden Week marked a geopolitical shift, affecting the Shanghai Composite and Shenzhen indices, down nearly 1% and 2% respectively. The new export controls on lithium-ion batteries require government approval from November 8, emphasising China’s control over the clean-energy sector and positioning against any friction with Washington.

Stricter inspections are now imposed on chip imports at major ports, tightening on Nvidia’s China-specific processors. This restricts access to advanced AI silicon, challenging domestic AI startups to innovate while reacting to global dynamics. Simultaneously, the Chinese restrictions on rare earth exports further reinforce Beijing’s influential position in the technology race.

Global Market Dynamics

Markets face challenges reflecting these power plays, with the Hang Seng Index’s 38% year-to-date gain contrasting the S&P 500’s 15.9%. Global equities are up over 20%, suggesting investors focus beyond geopolitics, though tensions bring anxiety with potential impacts on supply chains and manufacturing.

As Trump and Xi prepare for discussions on the APEC forum’s sidelines, the strategic export controls and sanctions highlight ongoing economic tensions. The scenario has evolved into a conflict over technological dominance rather than traditional trade disputes, where controlling technology and resource access defines the future path.

The game has clearly changed since China’s Golden Week holiday ended. We are seeing implied volatility creep back into the market, with the Hang Seng’s volatility index jumping nearly 20% this week. The new reality is that geopolitical headlines are now direct inputs for our risk models, not just background noise.

The November 8th deadline for battery export controls is the most immediate catalyst on our radar. Lithium carbonate futures have already surged 15% in the last two weeks, a move we last saw back in the supply crunch of 2022. Buying call options on battery material producers like Ganfeng Lithium or broad ETFs exposed to the clean energy supply chain looks like a smart way to position for further disruptions.

On the other side of this fight, the chokehold on silicon is tightening, and we see continued pressure on semiconductor stocks with high China exposure. Looking back, this feels like an echo of the US CHIPS Act of 2022, but with a more immediate market impact. We are considering buying puts on select semiconductor indices as a hedge, as we expect guidance from these companies to sour.

Focus Shift in Market Strategies

We must also acknowledge the strange disconnect where the Hang Seng is up 38% for the year, far outpacing the S&P 500. This rally feels fragile, built more on liquidity than on solid fundamentals in this new environment. This might be the last cheap opportunity to buy protective puts on broad China-tracking ETFs before the upcoming APEC summit.

That meeting between Trump and Xi later this month is the main event, and it’s shaping up to be a binary outcome for the market. Positioning for a big move, regardless of direction, is the prudent play here. We are looking at straddles on key indices to capture the spike in volatility we anticipate, as any handshake or cold shoulder will send ripples through the market.

Ultimately, we are shifting our focus from traditional economic data to tracking supply chain metrics. The volume of export permits approved by Beijing may soon become as important to our trading decisions as any inflation report from Washington. This is no longer a trade war; it’s a new market regime where we trade the flow of critical technology.

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