(Bloomberg) -- Investors in China are bracing for a challenging Monday as the nation’s financial markets prepare to reopen after an extended weekend. The recent announcement of retaliatory tariffs by the Chinese government against the United States is expected to create significant turbulence.

On Friday, a key index tracking Chinese stocks listed in the United States experienced a steep decline, plummeting 8.9%. This marked the most significant drop since October 2022, coinciding with a wave of global market uncertainty. The decline followed Beijing's decision to implement a hefty 34% tariff on all imports from the U.S. This sharp escalation in trade tensions occurred while Chinese and Hong Kong markets were closed for a holiday, and trading will resume on Monday.

If local shares mirror the losses seen in U.S.-listed stocks, several major Chinese equity gauges could fall into a technical correction. For instance, the Hang Seng China Enterprises Index, which has been the top-performing major global index this year, could be pushed dangerously close to bear market territory. Such a downturn would not only disrupt an emerging recovery in Chinese assets but also raise concerns about the broader economic landscape unless local investors and bargain hunters step in to stabilize the markets.

According to Xin-Yao Ng, a fund manager at Aberdeen Investments, Monday’s market opening is likely to be disappointing. However, he views it as a potential buying opportunity. “Many estimates suggest that the ongoing tariff wars could reduce China’s GDP growth by as much as 2 percentage points. Nevertheless, I am confident that the government will alleviate some of this economic pain through stimulus measures and trade agreements with countries outside of the U.S. in the near future,” Ng stated.

In light of these developments, Goldman Sachs Group Inc. has adjusted its 12-month forecasts for Chinese equity indexes, reflecting a more cautious outlook. In a report released on Sunday, analysts, including Kinger Lau, downgraded the target for the MSCI China Index to 81 from 85 and lowered the outlook for the CSI 300 Index from 4,700 to 4,500.

The analysts at Goldman Sachs noted, “The bullish momentum in the market is likely to slow due to event risks and pressures from profit-taking. In the short term, we may need to reassess our risk-case valuations until there’s more clarity on trade policies or until a new balance on tariffs is established.”

Another critical factor to watch will be the value of the yuan. Analysts have speculated that Beijing may consider devaluing the currency to enhance exports and mitigate the adverse effects of the higher tariffs imposed by the U.S. Following President Trump’s tariff announcement, the yuan dropped to its weakest level since February during onshore trading, which could be a sign of the broader economic repercussions of these escalating trade tensions.