Asian stocks extend slump amid fears of Sino-US trade war

[chahlley18]

                                          (World Today Saturday 24 March 2018)

  Asian stocks extend slump amid fears of Sino-US trade war

A man is seen against an electronic board showing stock information at a brokerage house in Jiujiang,

Jiangxi province, China. Stock declines deepened globally on Friday (March 23), with gauges tumbling

across Asia. Photo: China Daily via Reuters

Updated 24 March, 2018

BEIJING — Stock declines deepened globally on Friday (March 23), with gauges tumbling across Asia after China unveiled plans for tariffs on United States imports in retaliation to protectionist measures by Washington.

Government bonds climbed as investors sought safer assets, while traditional havens including gold and the yen jumped.

World stocks, down 3.4 per cent since Monday, are on course for their worst week since early February, when a spike in volatility sent markets into a tailspin.

Equity indexes from Tokyo to Shanghai tumbled well over 3 per cent.

Singapore’s Straits Times Index ended 69.98 points or 2 per cent lower to 3,421.39, while Bursa Malaysia Bhd stock fell 11.65 points to 1,865.22 amid a sell-off in global equities.

It’s been a miserable week for higher-risk markets globally, as a trade war edged closer, the tech sector was roiled by Facebook’s data scandal and a report showed European growth sputtering.

“The equity markets are getting clobbered, which is not that surprising with fears of a trade war breaking out,” said Mr Paul Fage, a TD Securities emerging markets strategist.

In China, the Shanghai Composite index closed down 3.6 per cent at 3,152.76 points, its lowest close since Feb 9.

China’s blue-chip CSI300 index was down 2.9 per cent at 3,891.47, its lowest close since Feb 12.

Hong Kong’s Hang Seng Index closed 2.5 per cent lower at 30,309.2, its lowest since March 7.

All three indexes suffered their biggest daily percentage drops since Feb 9. It was also their worst weekly performance in six weeks.

“Markets will remain volatile while investors watch further developments on trade frictions between China and the US,” said Mr Daniel So, Hong Kong-based strategist with CMB International Securities Ltd.

South Korean shares dropped by the most in about six years. The Korea Composite Stock Price Index (KOSPI) closed down 3.2 per cent at 2,416.76 points, lowest since March 7. It was also the biggest daily percentage loss since May 2012.

In Japan, the benchmark Nikkei ended 4.5 per cent lower at 20,617.86, its biggest daily percentage drop since early February and its lowest closing level since Oct 3.

Wall Street stocks were mixed Friday. In midmorning trading, the S&P 500 and Dow Jones industrial average were both slightly higher, while the Nasdaq composite was lower.

Fears of a trade war between the world’s two largest economies spiked after US President Donald Trump’s move to order levies on a range of Chinese goods, with China warning the US on Friday that it was “not afraid of a trade war” as Beijing threatened reciprocal tariffs on US$3 billion (S$3.9 billion) of imports from Washington.

Hours after Mr Trump instructed US Trade Representative Robert Lighthizer to slap tariffs on at least US$50 billion in Chinese imports, China’s Commerce Ministry said it plans a 25 per cent tariff on US pork imports and recycled aluminium, and 15 per cent tariffs on American steel pipes, fruit and wine.

China will also pursue legal action against the US at the World Trade Organisation and called for dialogue to resolve the dispute.

“China doesn’t hope to be in a trade war, but is not afraid of engaging in one,” the Chinese commerce ministry said in a statement.

“China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.”

Foreign Ministry spokeswoman Hua Chunying said China would not hold back in retaliating.

“It’s impolite not to give as good as one gets,” Ms Hua told reporters.

Mr Trump, who has branded China a “strategic competitor” —  although Beijing said that US-China trade relations should not be a zero-sum game — signed an executive memo on Thursday instructing the trade representative to come up with a proposed list of products that will face higher tariffs within 15 days.

The US will impose 25 per cent duties on targeted Chinese products to compensate for the harm caused to the American economy from China’s policies, according to a fact sheet released by the US trade representative.

The proposed product list will include items in aerospace, information and communication technology and machinery. The US trade representative will announce the proposed list in the next “several days”, according to the fact sheet.

Ms Gao Ting, head of China Strategy at UBS Securities, said in a note that tariffs proposed by Mr Trump could reduce China’s GDP growth by 0.1 per cent in 2018.

In a separate note on Friday, the UBS chief investment office said it saw a 20 to 30 per cent probability of “damaging retaliation” by China to US trade actions.

BREWING TRADE WAR

Policy makers and analysts across the world are warning of a brewing trade war that could undermine the broadest global recovery in years.

“We do seem to be entering a trade war,” said Mr Eswar Prasad, a senior professor of trade policy at Cornell University. “The US has unsheathed its sword after an extended period of sabre rattling and the Chinese are now unsheathing their weapons.

“I hope this will not spiral into a very broad set of sanctions on both sides,” Mr Prasad added. “But I think, given Mr Trump’s instincts and his very keen desire to deliver a political win whatever the political fallout might be, I don’t think it can be tamped down now.”

Mr Prasad’s comments were echoed by Associate Professor Lawrence Loh from the National University of Singapore (NUS) Business School, who said “no one will win in a trade war, and (instead), many countries will be affected.”

The US$3 billion worth of goods that Beijing plans to penalise represent just about 2 per cent of US exports to China, which amounted to US$130 billion last year, according to Mr Chad Bown, a senior fellow at the Peterson Institute for International Economics.

Nevertheless, China will not take this lying down, said NUS Business School visiting senior fellow Alex Capri.

“(This) could spark ongoing tit-for-tat, which would be very disruptive to global value chains and ultimately spook the markets, which would be damaging to the everyone.”

More worryingly, the room for “miscalculation seems to be high” said Mr James Cheo, a senior investment strategist with Bank of Singapore in an investment note, especially in terms of “provoking Chinese retaliation or taking measures that end up hurting the US economy.”

Experts pointed out that China picked its targets carefully by choosing goods that have political resonance.

Much pork is produced in Nebraska and elsewhere in the Midwest, where Mr Trump has strong support. Other items that could face tariffs are fruits and nuts that mostly come from California.

Still, Mr Trump appears intent on fulfilling election campaign promises to reduce the record US trade deficit with China.

A commentary published by the official Xinhua news agency said the US had adopted a “Cold War mentality”, and “panic” over China’s economic rise was driving Washington’s confrontational approach.

US multi-nationals at a business gathering in Shanghai were warned by Mr Stephen Roach, a Yale University economist, “to prepare for the worst” and make contingencies until calmer heads prevail.

Mr Roach said he could foresee “the Chinese government moving to restrict, in some form or another, the financial as well as the supply chain activities of American companies operating in this country.” AGENCIES

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