Markets slump on fears of prolonged trade tensions

A pedestrian walks past a display showing closing information of Tokyo's Nikkei Stock Average at a securities office in Tokyo, Japan, on May 14, 2019.
A pedestrian walks past a display showing closing information of Tokyo's Nikkei Stock Average at a securities office in Tokyo, Japan, on May 14, 2019. PHOTO: EPA-EFE

Hopes pinned on resolution at G-20 Summit after US threatens China with more tariffs

Asian markets saw red yesterday as the trade war between China and the United States threatened to spiral out of control, with both upping the ante. Bourses in Hong Kong, China and Japan all closed lower on the heels of Wall Street's earlier US$1 trillion (S$1.37 trillion) wipeout.

With neither side backing down, all eyes are on the upcoming Group of 20 Summit late next month.

Noting that a 90-day truce had been called at last December's G-20 Summit in Argentina, economists from UOB flagged the possibility of another ceasefire with US President Donald Trump and Chinese President Xi Jinping expected to meet in Osaka.

But ongoing negotiations are likely to be "long-drawn, well into the second half of this year, before a resolution", the analysts added.

Minister for Trade and Industry Chan Chun Sing said the US-China conflict was a serious one and could have wide-ranging implications.

"The worsening trade tensions will affect global businesses and consumer confidence, hurting global investments and consequently there will be a negative impact on jobs," he said on the sidelines of an International Maritime Defence Exhibition and Conference Asia event yesterday. "Singapore cannot be immune to this fallout."

The tensions heated up last Friday when the US raised tariffs on US$200 billion worth of Chinese imports, from 10 per cent to 25 per cent.

 
 
 
 

China retaliated on Monday, announcing it would hike tariffs on US$60 billion worth of US goods from June 1. The US countered by releasing a list of another US$300 billion worth of Chinese goods that could be hit with a 25 per cent tariff.

The hostilities wiped out more than US$1 trillion of stock market value on Wall Street, led by losses in the technology sector. Asian markets took a hit yesterday as well, with Indonesia, Japan and Singapore logging declines.

Chinese markets moved in and out of the red amid signs of state support, ending the day lower, said Reuters. The Shanghai Composite closed 0.69 per cent down.

Meanwhile, Hong Kong's Hang Seng Index fell 1.5 per cent and Japan's Nikkei 225 fell 0.59 per cent.

Singapore's Straits Times Index closed 0.33 per cent down as well and the Jakarta Stock Exchange Composite Index was 1.05 per cent lower.

OCBC Bank head of treasury research and strategy Selena Ling said market "sensitivity to (news) headlines is very high" as trade talks could go either way.

Noting how hopes of a deal had taken a sudden hit, she added: "There is a lot of speculation about whether this is just rhetoric or a strategy, on part of both sides, to try and gun for a better deal."

Still she does not expect China to exercise its "nuclear option" of dumping the US$1.13 trillion of US Treasury bonds it holds. While that would hurt the US by triggering a surge in interest rates, it would also harm China, she noted.

UOB economist Barnabas Gan said: "The intensification of the US-Sino trade tensions will likely drag Asia's... growth outlook." The "lacklustre backdrop" would likely hurt Singapore's open economy.

Meanwhile, businesses here are still holding out for a resolution.

"We still think that there will be a compromise in the end," said Singapore Business Federation chairman Teo Siong Seng, who added that there are no winners in this trade war. But he believes the current uncertainty is likely to extend to the 2020 US elections as it could be leveraged as a political tool, making it tough for businesses to plan for the medium or long term.

Mr Kurt Wee, president of the Association of Small and Medium Enterprises, said some companies have already seen their orders fall by double-digit percentages after the earlier rounds of tariffs. While businesses have been trying to reposition themselves, he said: "We will expect businesses to exercise a lot more caution towards how much they invest and also how they invest."

 
A version of this article appeared in the print edition of The Straits Times on May 15, 2019, with the headline 'Markets slump on fears of prolonged trade tensions'. Print Edition | Subscribe