U.S.-listed Chinese stocks fell sharply on Friday after President Donald Trump and Chinese President Xi Jinping announced a limited trade truce that offered temporary relief but left deeper tensions unresolved.

Alibaba Group Holding Limited (NYSE:BABA), often viewed as a bellwether for China's technology sector, led the decline, slipping alongside other major U.S.-listed peers including PDD Holdings Inc (NASDAQ:PDD), JD.com, Inc (NASDAQ:JD), and Baidu, Inc (NASDAQ:BIDU).

Stocks of Chinese electric vehicle makers Li Auto Inc (NASDAQ:LI) and XPeng Inc (NYSE:XPEV) also retreated, underscoring the cautious sentiment across sectors.

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Trade Truce Eases Some Pressure -- But Not Enough

The agreement between Trump and Xi marked a modest step toward easing trade tensions but stopped short of resolving key disputes. Trump announced partial tariff relief, suspending the "50% rule" on Chinese exports and cutting duties on fentanyl-related products.

In return, Xi pledged to pause China's rare earth export controls, which are critical to industries such as defense, electric vehicles, electronics, and renewable energy. He also committed to increasing purchases of U.S. agricultural goods, including soybeans and sorghum.

However, the leaders sidestepped sensitive issues including semiconductors, Taiwan, and the ownership of TikTok -- all major flashpoints that continue to weigh on bilateral relations.

Investor Reactions Highlight Lingering Uncertainty

Market analysts offered mixed assessments of the truce's impact. Kristina Hooper, chief market strategist at Man Group, told Reuters the deal removes a major overhang for investors and could restore some foreign confidence in Chinese assets.

Cusson Leung, chief investment officer at KGI in Hong Kong, said he plans to keep adding to China positions, saying his optimism stems more from the nation's economic recovery than from the trade deal itself.

Chaoping Zhu, global market strategist at JPMorgan Asset Management, said that both sides appear to be balancing rivalry with cooperation -- a dynamic he believes could strengthen domestic supply chains and benefit industries on both sides.

But others urged caution. Devesh Divya, FX strategist at Standard Chartered, warned that investor skepticism persists, describing the truce as an "unstable equilibrium." While uncertainty may have eased slightly, he noted, global firms still face a challenging investment environment as they navigate between the world's two largest economies.

Outlook

Despite the short-term relief, the market reaction suggests investors remain wary of headline risks that could derail sentiment.

With core issues unresolved and geopolitical competition deepening, analysts say any sustainable rebound in U.S.-listed Chinese equities will depend on clearer progress in trade and technology negotiations.

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