Pelosi in Taiwan: Asia stocks rise but investors remain nervous over China-US tensions

TOKYO (AFP, BLOOMBERG) – Asian markets mostly rose on Wednesday (Aug 3) after the previous day’s tumble, with the focus on US House Speaker Nancy Pelosi’s visit to Taiwan, which has further strained already tense China-US ties and raised concerns about the long-term impact on the global outlook.

The highest profile trip to the island in 25 years by a US politician was met with condemnation from Beijing, which warned of serious economic and military consequences.

Taiwan said more than 20 Chinese military aircraft had flown into the island’s air defence identification zone – an area wider than its territorial airspace that overlaps with part of China’s air defence zone. The People’s Liberation Army was also due to conduct a series of drills.

Beijing views the self-ruled island as part of its territory to be seized by force if necessary.

No one expected it would spark a conflict, but the crisis sent shivers through trading floors that were already on edge over a range of issues including the Ukraine war, surging inflation, rising interest rates and slowing economic growth.

However, ahead of a meeting between Mrs Pelosi and Taiwan President Tsai Ing-wen most markets saw a recovery, with Hong Kong and Shanghai among the best gainers.

Tokyo, Singapore, Seoul, Wellington and Manila were also up, though Taipei, Sydney and Jakarta edged down.

Japan’s Nikkei gained 0.5 per cent, rebounding from Tuesday’s two-week closing low. The Shanghai Composite Index was up 0.2 per cent and Hong Kong’s Hang Seng also rose 0.2 per cent, both indices paring earlier jumps.

“Hong Kong and Chinese shares have recovered around a third of yesterday’s losses because of relief that there was no major confrontation overnight,” Mr Steven Leung, executive director for institutional sales at UOB Kay Hian in Hong Kong.

“However, investors are going to remain nervous due to the military exercises planned for after Pelosi’s departure.”

Singapore’s Straits Times Index opened down 0.2 per cent but was up 0.3 per cent at 11.13am local time.

The “short-term implication may be ‘sell the rumour, buy the news’ as the official response so far remains much more restrained versus what the market has feared,” Bao Xiadong, at Edmond de Rothschild Asset Management, said.

“But the mid/long-term implication can be more significant, which may be currently overlooked by the market. The official return of the US influence in Asia-Pacific will inevitably accelerate US-China decoupling.”

Analysts are also keen to find out what the White House’s response will be, particularly ahead of mid-term elections in November with anti-China rhetoric playing well with voters, but with President Joe Biden keen not to further harm economic ties.

SPI Asset Management’s Stephen Innes added that the US administration was probably not likely to cut Trump-era tariffs before then.

Missile tests

China, which regards Taiwan as part of its territory, announced missile tests and military drills around the island after Mrs Pelosi became the highest-ranking American politician to visit in 25 years.

China also halted natural sand exports to Taiwan and some fish and fruit imports from the island.

While fears of an acute deterioration in ties between the US and China appear to have cooled, the ill-will highlights the risk of longer-term economic decoupling with an array of potential impacts, such as stickier inflation as supply chains adjust.

China’s Contemporary Amperex Technology, the world’s biggest maker of batteries for electric vehicles, decided to push back announcing a multi-billion dollar North American plant to supply Tesla and Ford Motor due to tensions raised by Mrs Pelosi’s trip to Taiwan, according to sources familiar with the matter.

“Pelosi’s trip might exacerbate the already strained US-China relationship, and impede on growth if more counter-productive measures are deployed,” said Mr Bernard Shaw, an Asia bond syndicate banker at Daiwa Capital Markets Singapore.