Bulls And Bears

Sea of red in Asia as trade storm looms

Traders keeping eye on escalating China-US trade row, rising crude prices

Stock markets in Asia tumbled yesterday, extending a recent sell-off on concerns about a looming China-US trade war.

After weeks of grappling with conflicting trade-related statements from the United States, China's President Xi Jinping warned world leaders to be ready for a full-scale trade war with the US. Washington is due to unveil restrictions on foreign investment in US technology companies on Friday, and US President Donald Trump has said they would not be confined to China.

In a brief statement yesterday, China's Commerce Ministry said Beijing would assess the potential impact of the expected US investment restrictions on Chinese firms.

It did not rule out the possibility of fine-tuning its plans to further open up its markets this year.

"I guess (it's) let's see who blinks first in this escalating game of chicken," said Mr Stephen Innes, head of Asia-Pacific trading at OANDA.

"The latest actions are more a case of China dangling the US treasuries carrot, knowing full well the refunding season is just around the corner. While the market initially covered some short dollars, it's very unlikely China will escalate the trade war with the US as this will severely erode the value of their massive treasury holdings while throwing global capital markets into complete disarray."

Bank of Singapore currency strategist Sim Moh Siong said the risk of a tit-for-tat tariff escalation was fuelling worries of a tech supply chain disruption hurting small, open Asian economies exposed to the Chinese economy and dependent on global supply chains.

Growth and inflation outlook is also complicated by crude oil prices rising above US$75 per barrel, due to Washington pressuring its allies to halt Iranian imports. Bloomberg said more hedge fund managers expected impending market chaos.

Regionally, Hong Kong's Hang Seng Index fell 1.82 per cent, or 525.14 points, to close at 28,356.26. The benchmark Shanghai Composite Index retreated 1.10 per cent, or 31.33 points, to 2,813.18 and the Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 1.29 per cent, or 20.60 points, to 1,575.57.

Developing-market stocks tumbled, with the MSCI Emerging Markets Index hitting the lowest in 10 months as gauges from South Africa to India retreated.

In Singapore, the Straits Times Index closed at 3,254.77, down 26.1 points, or 0.8 per cent, from Tuesday's close.

A version of this article appeared in the print edition of The Straits Times on June 28, 2018, with the headline 'Sea of red in Asia as trade storm looms'. Print Edition | Subscribe