Asian markets were mostly higher on Wednesday after the previous day’s setback, with focus on House Speaker Nancy Pelosi’s visit to Taiwan, further straining already strained China-US relations and concerns over the long-term impact on the US has awakened global prospects.
The most high-profile trip to the island by a US politician in 25 years was condemned by Beijing, which warned of serious economic and military consequences.
Taiwan said more than 20 Chinese military planes flew into the island’s air defense identification zone – an area wider than its territorial airspace and overlapping with part of China’s air defense zone. The People’s Liberation Army should also conduct a series of exercises.
Beijing regards the self-governing island as part of its territory, which can be taken by force if necessary.
No one expected this to spark a conflict, but the crisis sent shivers through the stock exchange floors, which were already on edge over a range of issues including the Ukraine war, rising inflation, rising interest rates and slowing economic growth.
However, ahead of a meeting between Pelosi and Taiwan President Tsai Ing-wen, most markets rallied, with Hong Kong and Shanghai among the biggest gainers.
Tokyo, Singapore, Seoul, Wellington and Manila also rose while Taipei, Sydney and Jakarta fell.
The “short-term implication could be ‘sell the rumour, buy the news’ as the official reaction so far remains much more dovish than what the market feared,” said Edmond de Rothschild Asset Management’s Xiadong Bao.
“But the medium/long-term implications may be more significant, which may currently be overlooked by the market.
Analysts are also keen to see what the White House reaction will be, especially ahead of November’s midterm elections, when anti-China rhetoric is well received by voters but President Joe Biden is anxious not to further damage economic ties.
Stephen Innes of SPI Asset Management added that the US government is unlikely to lower Trump-era tariffs until then.
A positive start to the day in Asia was followed by a slump on Wall Street, where the Taiwan crisis was exacerbated by a series of hawkish comments from US Federal Reserve officials suggesting more big rate hikes could be in the pipeline.
Stocks rallied last week and Treasury yields fell after CEO Jerome Powell suggested the bank could be starting to slow, but recent comments suggest a hoped-for dovish turn may not be yet as the Inflation remains stubbornly high.
Recent developments have raised concerns that market volatility is likely to persist for some time.
“It’s hard to see any meaningful upside in stocks right now,” said Xi Qiao of UBS Group. “The market will trade quite mixed, remain choppy until we have a little more certainty,” she told Bloomberg News.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.5 percent at 27,740.97 (breakthrough)
Hong Kong – Hang Seng Index: up 0.9 percent to 19,864.26
Shanghai — Composite: up 0.6 percent to 3,204.47
Taipei – TAIEX: down 0.1 percent at 14,732.65
Dollar/Yen: UP at 133.54 yen from 133.10 yen on Tuesday
Euro/dollar: rise to $1.0174 from $1.0168
Pound/dollar: rise to $1.2165 from $1.2163
Euro/pound: up to 83.64p from 83.57p
West Texas Intermediate: up 0.1 percent to $94.50 a barrel
North Sea Brent Crude: FLAT at $100.54 a barrel
New York – Dow: down 1.2 percent at 32,396.17 (close)
London – FTSE 100: down 0.1 percent at 7,409.11 (close)
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