KE Holdings Stock Declines Amid Renewed Tariff Concerns and Below-Consensus Guidance

Market Responds to Heightened Trade Tensions and BEKE Performance

Global equity markets experienced significant volatility on Friday, October 10, 2025, with major U.S. indices closing sharply lower after President Donald Trump threatened "massive" tariffs on Chinese imports. This renewed geopolitical tension, coupled with KE Holdings Inc. (NYSE:BEKE) reporting a substantial decline in net income and providing second-quarter 2025 guidance below consensus, led to a notable decline in the company's stock.

The Event in Detail: Tariffs and KE Holdings' Q2 Results

The market downturn was primarily triggered by President Trump's remarks on his Truth Social network, where he stated that China "was becoming hostile" regarding rare earths and indicated that "one of the Policies that we are calculating at this moment is a massive increase of Tariffs on Chinese products coming into the United States of America." Following the market's close, Trump further announced an additional 100% tariff on goods from China, effective November 1, rekindling fears of a full-scale trade war.

This announcement reversed early market gains, with the tech-heavy Nasdaq Composite tumbling 3.6%, or 820 points, despite hitting a fresh intraday record earlier in the session. The benchmark S&P 500 sank 2.7%, or 182 points, and the blue-chip Dow Jones Industrial Average dropped 1.9%, or 878 points. Individual stocks were significantly affected; Nvidia (NVDA) shares, after touching a new all-time high, reversed course to finish down 4.9%, while Advanced Micro Devices (AMD) sank 7.8%. Amazon (AMZN), a company vulnerable to increased tariffs on Chinese-made products, dropped 5%.

Simultaneously, KE Holdings Inc. (BEKE) released its unaudited financial results for the second quarter of 2025. The company reported net revenues of RMB26.0 billion ($3.6 billion), an increase of 11.3% year-over-year, yet this figure came in slightly below analyst expectations of RMB26.19 billion. Despite top-line growth, net income decreased substantially by 31.2% year-over-year to RMB1,307 million ($182 million). Adjusted net income also saw a decline of 32.4% to RMB1,821 million ($254 million). Basic adjusted net income per ADS was $0.23, while diluted adjusted net income per ADS was $0.22.

Operational metrics showed mixed signals: Gross Transaction Value (GTV) reached RMB878.7 billion ($122.7 billion), up 4.7% from a year earlier, driven by an 8.5% growth in new home transactions. The company continued its platform expansion, with 60,546 stores (+31.8% Y/Y) and 491,573 agents (+19.5% Y/Y). However, the operating margin narrowed to 4.1% from 8.6% in the previous year. Furthermore, the company hinted at a potential future share issuance, which, despite the simultaneous announcement of an upsizing and extension of its share repurchase program by $2 billion to a total of $5 billion through August 31, 2028, added a layer of uncertainty for investors.

Analysis of Market Reaction: Tariffs' Ripple Effect and BEKE's Vulnerability

The market's adverse reaction to the tariff news reflects deep-seated concerns over their potential secondary impacts on the Chinese economy and, consequently, the real estate prices that form the core of KE Holdings' business. Escalating U.S. tariffs are widely expected to strain China's already slowing economic growth and depress buyer confidence, posing significant challenges for the country's housing market. While tariffs do not directly target the property sector, their effects on slowed exports and manufacturing directly impact household income and consumer sentiment, crucial drivers for real estate demand.

The Economic Intelligence Unit estimates that the current 20 percentage-point tariff increase could reduce China's GDP growth by 0.6 percentage points annually through 2027. In a worst-case scenario with 60% tariffs, the decline could reach 2.5 percentage points. UBS projects China's GDP growth to slow to 4% in 2025 and 3% in 2026 under such conditions. For KE Holdings, a company whose fortunes are intrinsically tied to the health of the Chinese housing market, these macroeconomic headwinds present significant challenges to future profitability. The decline in net income, despite revenue growth, underscores the difficulty in maintaining margins in a challenging environment. The market's focus on potential share dilution, despite the existing buyback program, highlights investor sensitivity to any factors that could further pressure earnings per share amidst economic uncertainty.

Broader Context and Implications: China's Economic Dilemma

The current situation underscores the multifaceted economic risks facing China. A critical assessment points to a real risk of a Japanese-style deflationary spiral, characterized by falling prices that hamper consumption and investment, reduce corporate profits, and increase real debt burdens. The 35-month period of producer price deflation is a stark indicator that this process is already underway. Risks to financial stability are significant due to the high indebtedness of local governments and real estate developers, with the IMF warning of a potential debt deflation trap. Overcapacity, particularly in industries like solar, threatens massive company closures, while China's aggressive export strategy risks escalating trade conflicts, as Western nations increasingly respond with tariffs and trade barriers.

China's real estate market has shown profound weakness. Property investments plunged 12% in the first seven months of 2025, with residential housing investment dropping nearly 11%. Prices for newly built housing in major cities fell 1.1%, and new home prices across 70 cities plummeted 3.2% year-over-year in June 2025, marking the 24th consecutive monthly decline. This ongoing real estate crisis is eroding household wealth, given that residential real estate constitutes the majority of Chinese families' assets, leading to reduced perceived prosperity and increased precautionary saving, which in turn crimps consumer spending.

Expert Commentary

Analysts have adjusted their outlooks in light of the evolving economic landscape. Barclays analyst Jiong Shao maintained an "Overweight" rating but reduced the price target for KE Holdings from $33 to $25 on August 15, 2025. Similarly, JP Morgan analyst Alex Yao maintained an "Overweight" rating while cutting the price target from $24 to $22 on August 12, 2025. These adjustments reflect a more cautious stance on the company's valuation amidst the tightening market conditions and macro uncertainty.

Looking Ahead

The immediate outlook for KE Holdings and the broader Chinese market remains highly dependent on the trajectory of U.S.-China trade relations and the resilience of the Chinese economy. Investors will closely monitor further developments in trade policy, including any new tariff announcements or negotiations. The ability of the Chinese government to implement effective stimulus measures to counter deflationary pressures and stabilize the real estate sector will be critical. For KE Holdings, the focus will be on its capacity to leverage its platform expansion and AI-driven initiatives to navigate market headwinds, maintain operational efficiency, and adapt to changing consumer behavior in a challenging housing market. Upcoming economic reports on inflation, industrial production, and consumer spending in China will provide further insights into the economic path ahead.