Stocks rise despite dashed hopes over US-China trade deal

Stocks across Asia-Pacific rose on Friday despite the US raising tariffs on $200bn of Chinese goods, as hopes were dashed that negotiators would agree to a deal in Washington to end a bitter trade war between the world’s two largest economies.

The CSI 300 index of major stocks listed in Shanghai and Shenzhen, which rose as much as 3 per cent in morning trading, was down 0.3 per cent immediately after the deadline before bouncing back to be up 3.6 per cent at the close.

In Tokyo, the Topix fell 0.1 per cent and Sydney’s S&P/ASX 200 index finished 0.3 per cent higher.

S&P 500 futures were down 0.3 per cent after Beijing said it would take countermeasures in response to the US move. European bourses also stayed positive, with sectors exposed to the trade war in the lead. The region-wide Stoxx 600 rose 0.9 per cent, with the index tracking miners up 1.1 per cent.

By a minute after midnight in Washington, when the tariff increase officially took effect, gains for equities benchmarks across Asia had reversed or pulled back as early optimism that a deal might be achieved dissipated.

“Markets were expecting a just-before-the-stroke-of-midnight, last-minute deal to delay [raising tariffs], or were at least hedging their bets that could be an outcome,” said Hannah Anderson, global market strategist at JPMorgan Asset Management.

Ms Anderson said that while it would take a few weeks for the full impact of the tariff increase to be felt, when it did the brunt would be borne by intermediate goods used to make other products.

“From a market perspective . . . that’s all of a sudden higher costs for manufacturing firms, industrial firms, and a lot of what is listed within the technology space, because of technology goods that are manufactured with components that come originally from China,” she said.

Trinh Nguyen, senior economist at Natixis, said the market impact beyond China and the US would depend on Beijing’s ability to mitigate the negative effect of the tariffs at a time when its economy was relatively weak.

“That is the key worry, China’s ability to absorb this and how it’s going to impact the rest of the world,” she said.

Ms Nguyen added that failure to do so would be most keenly felt by those linked to China through global supply chains, such as South Korea and Germany.

Michelle Lam, greater China economist at Société Générale, said investors would be waiting to gauge the intensity of China’s response.

She said Beijing would feel pressure to follow through on an earlier vow to impose tariffs on $60bn of imports from the US, made last year in response to US president Donald Trump’s initial threat to raise tariffs on Chinese imports to 25 per cent that was postponed until Friday.

“If there are any retaliatory measures beyond that $60bn of goods, that will suggest the relationship between the US and China has gotten worse,” Ms Lam said.

Analysts added that the renminbi was likely to become more volatile in the weeks ahead as uncertainty over future escalation increased.

The onshore renminbi, which moves 2 per cent in either direction of a daily midpoint set by the People’s Bank of China, strengthened as much as 0.5 per cent against the dollar ahead of the deadline on Friday but was just 0.3 per cent firmer in Asia afternoon trading at Rmb6.8026 per dollar.

Fitch Ratings warned that further expansion of tariffs on Chinese goods by the US could pose a risk to China’s sovereign debt rating.

“If trade tensions eventually lead to blanket US tariffs on all Chinese goods, the potential impact to China’s sovereign ratings could be much more serious,” said Andrew Fennell, director of sovereign ratings at Fitch.

“It may tempt the authorities to abandon their restrained approach to policy easing, and fall back on credit-stimulus measures that further exacerbate the country’s already significant financial vulnerabilities,” he added.

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