Asian equities are poised to open mixed this morning, suggested by index futures, as US market recovered part of the earlier losses overnight with strong Housing Starts.
Despite heavy losses in several Dow Jones components - GE, Ford, Boeing and Starbucks over concerns that their businesses in China may be affected amid rising trade tensions between Washington and Beijing. Technology shares, however, have recovered most of the earlier losses. Dow, S&P500 and Nasdaq lost 1.15%, 0.4% and 0.28% respectively.
Global equity market lost foot ground on Tuesday as market participants worry about President Trump’s US$200 billion tariffs on Chinese exports receiving hard response from President Xi. Over 900 listed companies in Shanghai Exchange hit the 10% down limit, which is not seen for a long time.
This is clearly in response to escalating trade tensions between Washington and Beijing, which is likely to dominate market sentiment in the weeks to come. Things may turn more sour should China retaliate with ‘countermeasures’ against President Trump’s fresh punishment. Last night, spokesman from the Chinese central bank tried to restore confidence saying the turmoil was due to bad sentiment and they have tools to stabilise the economy and hold the bottom line.
The outcome of full trade war is devastating for both sides, but China’s huge consumer market could provide ‘strategic depth’ to cushion the impact of losing part of the US market for export. This allows Beijing more leverage on the negotiation table, and Xi’s government is unlikely to give up the ‘Made in China 2025’ plan – a strategic move that is critical for the country to move up the global supply chain ladder and achieve great revitalisation. However, in the short time, pain in the stock market seems inevitable.
Shanghai Composite lost 3.78% and closed at just above 2,900 points. While Shenzhen Composite – which represents the small to mid-cap technology companies – down over 5%. Such a big move downwards could potentially catalyse a technical rebound, especially if the ‘National Team’ – government-backed funds - step in to restore confidence, just like what they did in 2015 crisis. A technical rebound in these markets is possible should policymakers step in to intervene.
Hang Seng Index lost nearly 3% to 39,400 points, breaking down a key support level of 30,000. Singapore market is surprisingly resilient yesterday with banks, telcos and offshore & marine sector recovering some of yesterday’s losses. Higher oil prices overnight may be a positive factor behind this move. However, this could be a temporary ‘technical rebound’ against the backdrop of escalating trade tensions and global selloff.
ECB President Draghi’s speech in Portugal yesterday sent a dovish message to euro as he will maintain patience, persistence and prudence in monetary policy.
S&P 500 Index
By Margaret Yang in Singapore
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