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May 13, 2019

Asia markets take hit after rise in US tariffs

All eyes on China’s retaliation, notes economist

With rising uncertainty over US-China trade, which resulted in a rise in tariffs on Chinese goods last Friday, Asian markets responded by falling on Monday.

In China, the Shanghai Composite Index fell 1.21 percent, the Shenzhen Component Index fell 1.43 percent and the Shenzhen Composite Index dipped 1.076 percent. The reaction followed the US’ increase in tariffs from 10 percent to 25 percent on $200 bn worth of Chinese goods.

In Japan, the Nikkei 225 fell 0.72 percent, with shares of index big-hitter SoftBank Group falling 3.25 percent. The Tokyo Stock Price Index also fell 0.53 percent. In South Korea, the Korea Composite Stock Price Index fell 1.38 percent, while Australia’s ASX 200 lost 0.21 percent.

‘A lack of activity data and public holidays in some countries will make it a slow start to the week for Asian markets,’ writes Prakash Sakpal, Asia economist at Dutch bank ING, in an outlook note. ‘But the risk-off continues with the escalation of the US-China trade war after last Friday’s move by the US to raise tariffs on Chinese goods. All eyes are on China’s retaliation.’

There is concern that the next meeting between US President Donald Trump and Chinese President Xi Jinping will now not take place until the G20 Osaka Summit in Japan on June 28-29, with the markets having to negotiate the situation until then, adding to the uncertainty.

‘The sudden unexpected collapse is a surprise, but it does not mean the end of US-China trade talks,’ writes Tommy Xie, OCBC’s head of greater China research. ‘Change is the only constant in trade talk, unfortunately. The markets will continue to be driven by headline news going forward.’

Markets in Hong Kong were closed on Monday for a holiday.