Asia’s equity markets extend global sell-off, taking the cue from Wall Street’s $1 trillion wipeout overnight as trade war escalates

15-May-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

Asian equity markets extended the global sell-off of stocks, taking cues from the $1 trillion wipeout overnight on Wall Street, as investors sought shelter in safe havens from the escalating US-China trade war.

The biggest declines were seen in the stock indexes of markets that are reliant on the Chinese economy, with Hong Kong’s benchmark Hang Seng Index closing down 1.5 per cent after returning from a day’s holiday.

Meanwhile, the S&P/ASX200 index in commodity-dependent Australia fell 0.92 per cent. Markets dropped from Japan to Singapore and Taipei, with South Korea’s Kospi and Kosdaq indexes the only two that managed to eke out advances.

“As there isn’t a clear schedule for meetings between Chinese and US negotiators, markets are likely to be more volatile, especially in the absence of any substantive information not written in a tweet,” said Kerry Craig, a strategist at JPMorgan Asset Management. “Investors should prepare themselves for more volatile markets, but always have an eye on where value is created when sentiment can cause markets to swing too far in one direction.”

Global equities had $1 trillion in market cap wiped off in overnight trading, with the Dow Jones Industrial Average and the Standard and Poor’s 500 index sinking at least 2 per cent, after China said on Monday night that it will impose duties on $60 billion worth of imports from the US starting next month. The retaliatory measure followed the move by the White House last week to more than double the tariffs on shipments from China.

“The tariff increase and potential for additional tariffs are significant setbacks in the protracted trade dispute between the world’s two largest economies,” said Moody’s Investors Service’s senior vice-president of Corporate Finance Lina Choi and associate managing director Clement Wong. “We expect uncertainties around trade will continue before the US and China reach some form of a deal. But the negative effects of the existing and potential tariffs [is likely to] be widespread, given the many companies along supply chains. In China, few companies will be immune to the indirect negative impact. Consumption and investment will weaken, which will ultimately hurt economic growth.”

The top three of the 10 biggest categories of Chinese products facing higher US tariffs comprise telecommunications equipment, printed circuit boards and computer processing units, valued at a combined $37.2 billion, or 65 per cent, of the total $57.3 billion, according to a Bloomberg analysis.

Monday’s losses on the mainland were clipped, but indexes still closed down. The Shanghai Composite fell 0.62 per cent to 2,883.61, after slight gains in late morning trading, and the CSI 300 of large stocks listed on the Shanghai and Shenzhen markets, ended down 0.64 per cent to 3,645.15.

The Shenzhen Manufacturing Index, which tracks the performance of 1,421 manufacturers and industrial companies in China’s technology hub of Shenzhen, led declines in the benchmark Composite Index. Over 1,000 stocks on the manufacturing index fell. ZTE, one of the world’s largest producers of telecommunications equipment, earlier fell by as much as 2 per cent, though it trimmed the loss to close down 0.3 per cent.

Foreign investors sold 10.6 billion yuan (US$1.54 billion) of Chinese stocks through exchange links on Tuesday. It was the biggest single-day outflow since at least December 2016, when the stock connect programme between Shenzhen and Hong Kong started.

The sell-off came despite news that the MSCI will double the representation of Chinese shares in its benchmark gauge by the end of the month, to 10 per cent.

“China’s stocks had earlier fallen more than US and global stocks, so the reaction is pretty mild today,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “It is also a bit risky to further short Chinese stocks at this moment. The possibility is always there that a trade deal between the two countries will finally be struck. The market is in a state of equilibrium now, unless something unexpected suddenly happens, such as a sharp decline in economic growth.”


Category: FinanceAsia

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