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Stock market woes in China and Hong Kong spill over to Asia as Trump’s surprise tweet rekindles concerns of escalating trade war

May 6, 2019

Stock indexes tumbled in China and Hong Kong, after US President Donald Trump threatened to more than double America’s tariffs on Chinese goods, in a surprise move that rekindled concerns that the trade war between the world’s largest economies will escalate just a week before its final resolution.

The Shanghai Composite Index slid 3.7 per cent, or 115.13 points, to 2,962.32 in early Monday morning trading, as mainland China’s stock markets reopened after the three-day Labour Day holiday. On the Hong Kong exchange, the Hang Seng Index retreated 2.6 per cent to 29,310.66, while the China Enterprise Index, which tracks the performance of Chinese companies in Hong Kong, slumped 2.7 per cent to 11,260.60. Futures contracts on FTSE China A50 Index sank 3 per cent, while China’s offshore-traded yuan contracts plunged by the most in more than three years.

Live Stocks Blog: Chinese markets braced after overnight Trump tariff threat

China’s market woes spilled over to the rest of Asia, sinking stock indexes from Seoul to Sydney. Taiwan’s Taiex index and Australia’s S&P/ASX 200 Index dropped at least 1.2 per cent, while Singapore’s Straits Times index fell 2.8 per cent.

“Trump’s latest threat to raise tariffs on Chinese exports to pressure Beijing to make more concessions appears to reflect (that his administration is) seeking a harder line in response to domestic political pressures,” said Tai Hui, a strategist at JPMorgan Asset Management in Hong Kong. “Escalation of the trade war could be the trigger for weaker global growth. This is already being reflected in the futures market in early Asian session on Monday, albeit with reduced liquidity. In the near term, investors are rightfully worried since the lingering threat of a trade war weighed on risk assets in 2018, especially in Asia.”

Sentiment quickly turned sour as Trump said over the week that the US would increase tariffs on US$200 billion of Chinese goods to 25 per cent from 10 per cent starting Friday, saying the trade negotiation between Washington and Beijing was progressing too slowly.

He also threatened to impose a new 25 per cent duty on the remaining US$325 billion of imports from the Asian nation.

The twist in the China-US trade talks exacerbated the sell-off on Chinese stocks, which were earlier rattled by concerns that top policymakers would pare the stimulus to bolster growth amid improving economic data. The Shanghai Composite had been down almost 6 per cent through last Tuesday from an April high.

This article originally appeared on the South China Morning Post (SCMP), the leading news media reporting on China and Asia. For more SCMP stories, please download our mobile app, follow us on Twitter, and like us on Facebook.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.

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