Asian stock markets went into panic mode on Tuesday as news of a potential visit by US House of Representatives Speaker Nancy Pelosi to Taiwan sent a shockwave across the region’s trading floors.
Pelosi, who began an Asia trip earlier on Monday in Singapore, was due to spend Tuesday night in Taiwan, three sources said, with the United States stating it wouldn’t be intimidated by Chinese threats.
The announcement unsettled financial markets, already shaken by the war in Ukraine, surging commodity-driven inflation and rising global borrowing costs.
Several Chinese warplanes flew close to the median line of the sensitive Taiwan Strait on Tuesday morning, a source told Reuters.
China stocks slumped the most in three months after the news of Pelosi’s visit broke. Stocks dropped across the board, with property developers, healthcare, resource, and new energy down between 2.4% and 3.6%.
The Shanghai Composite Index dipped a hefty 2.26%, or 73.69 points, to 3,186.27, while the Shenzhen Composite Index on China’s second exchange dropped 2.92%, or 64.32 points, to 2,138.17.
Tech giants listed in Hong Kong tumbled nearly 4%, hit by a double whammy of rising geopolitical anxiety and lingering regulatory concerns.
The Hang Seng Index dropped 2.36 percent, or 476.63 points, to 19,689.21.
“The odds of an accident are rising,” said Marko Papic, chief strategist at Clocktower Group. “In the near-term, investors may consider hedging such risk with a tactical short position in Chinese equities and currency.”
Taiwan newspaper Liberty Times said Pelosi’s delegation was due to arrive at 10.20pm (1420 GMT) on Tuesday, without naming sources.
Pelosi was visiting Malaysia on Tuesday, having begun her Asia tour in Singapore on Monday. Her office has said she will also go to South Korea and Japan, but made no mention of a Taiwan visit.
Taiwan’s foreign ministry had no comment on reports of Pelosi’s travel plans, but the White House – which would not confirm the trip – said she had the right to go.
Tokyo, Malaysia, Singapore Slide
Japanese shares ended lower, amid the growing tensions between Beijing and Washington, while a firmer yen against the dollar prompted a selloff in exporters.
The Nikkei fell 1.42% to 27,594.73, while the broader Topix dropped 1.77% to 1,925.49.
Chip-making equipment maker Tokyo Electron fell 2% and was the biggest drag on the Nikkei. Toyota Motor slipped 2.6% and was the biggest drag on the Topix.
Elsewhere across the region, Pelosi’s imminent visit to Taiwan pressured most regional markets and shares in Indonesia, Malaysia, Thailand and Singapore were down.
In Seoul, the benchmark KOSPI was down 22.23 points, or 0.9%, at 2,430.02, as of 0321 GMT. The benchmark had climbed for a sixth straight session on Monday to hit the highest level since mid-June.
Australian stocks pared declines and the Aussie dollar weakened after the central bank raised the key rate by an as-expected 50 basis points, with markets interpreting changes to the accompanying policy statement as dovish.
Indian stocks edged ahead with Mumbai’s signature Nifty 50 index up 0.04%, or 7.35 points, at 17,347.40.
US Treasury Yields Drop
Globally, stocks slipped and bond yields fell, compounding fears of a global recession, on concerns that the visit by Pelosi to Taiwan would further harm relations between China and the United States.
Investors sought safer assets after China threatened repercussions if Pelosi visited the self-ruled island, which Beijing claims as its territory.
US long-term Treasury yields dropped to a four-month low, while euro zone bond yields fell. The dollar and Japanese yen gained. Crude oil also sank as investors amid signs of a global manufacturing downturn.
MSCI world equity index, which tracks shares in 47 countries, fell 0.4%. The broad Euro STOXX 600 shed 0.7% before clawing back some of its losses. Wall Street stocks were set to fall around 0.7%, futures gauges showed.
“It’s all about the Taiwan threat,” said Robert Alster, chief investment officer at Close Brothers Asset Management. “There’s no way you can say its not moved up to geopolitical agenda.”
Taiwan Dollar Hits Two-Year Low
The Taiwan issue added to a sense of unease sparked by China, Europe and the United States on Monday reporting weakening factory activity, with that in the US decelerating to its lowest level since August 2020.
The benchmark 10-year US Treasury yield fell as low as 2.53% in Tokyo trade, the lowest since April 5, also benefitting from bets a slowdown could spur the US Federal Reserve to ease off the policy-tightening pedal.
Brent futures edged down to $99.55 a barrel after losing almost $4 overnight. US West Texas Intermediate futures also eased to $93.59, extending Monday’s almost $5 slide.
The flight for safety played out in currency markets, too. The US dollar slid to as low as 130.40 against the Japanese yen, levels not seen for almost two months. Against a basket of currencies, the dollar rose 0.25% to 105.61.
The Taiwan dollar slipped to its lowest level in more than two years on the weaker side of 30 per US dollar.
Cryptocurrencies, a barometer for risk appetite, also fell, with bitcoin slipping 2.3% to $22,753.
Tokyo – Nikkei 225 < DOWN 1.42% at 27,594.73 (close)
Hong Kong – Hang Seng Index < DOWN 2.36% at 19,689.21 (close)
Shanghai – Composite < DOWN 2.26% at 3,186.27 (close)
New York – Dow < DOWN 0.14 percent at 32,798.40 (Monday close)
- Reuters with additional editing by Sean O’Meara, Jim Pollard