Renewed round of trade tariffs hitting US$200 billion Chinese imports hurt US markets last night, same as it did to major Asian ex-Japan equities this morning.

Nasdaq lost 1.43% or 114 points, leading the decline in US shares. The Trump administration will impose additional 10% tariffs on 24th Sep and will rise up to 25% in 2019, a move that will make it more difficult to start a constructive negotiation with Beijing. In the mid- to long-term, business activities and consumer sentiments may get affected as imports get more expensive and trade relationship deteriorates. In the near term, however, trade disputes so far isn’t a top-of-mind for many Americans, and it hasn’t had much impact yet on the US$20 trillion US economy.

Shanghai Composite dipped down early morning and quickly flipped into positive territory. China and HK market have both declined by more than 20% from the last peak seen in February this year, in response to strengthening USD and trade war. Emerging markets are particularly vulnerable to these two factors as capital tends to flee into developed markets seeking safety during time of uncertainties.

Technically, China, HK and Singapore markets are still in a clear downtrend, with ‘dead-crossed’ formed in their day charts. Fundamentally, however, it seems markets has priced-in too much pessimism about the outlook. Current valuations for Shanghai Composite, Hang Seng and STI are close to five-year low. The entire China stock market value is close to 6 times that of Apple Inc. China contributes to 15.6% of global GDP as at year 2017 but its stock market (including HK) accounts for only 13.4% of world market cap. Does that really make sense?

World exchange market cap and GDP comparison

 Market Cap in Trillion USD% of World Market CapGDP in Trillion USD% of World GDP
Global79.38100.0%80.68100.0%
US32.2540.6%19.3924.0%
Japan6.087.7%4.8726.0%
China5.667.1%12.2315.2%
HK5.036.3%0.3410.4%
UK3.544.5%2.623.2%
France2.553.2%2.583.2%
Canada2.513.2%1.6532.0%
Germany2.282.9%3.674.5%
Australia1.321.7%1.3231.6%
Apple Inc1.051.3%N.A.N.A.
Russia0.5640.7%1.5772.0%
Singapore0.490.6%0.3230.4%
Total 79.8% 62.7%

Source: Bloomberg world exchange market cap, World Bank country GDP 2017

By Margaret Yang in Singapore

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