Geopolitical tensions hit global stocks on Friday as investors braced for potential retaliation from Washington after Beijing approved a sweeping national security law for Hong Kong.
In early trading in the Asia-Pacific region, Hong Kong’s Hang Seng fell 1.3 per cent. Elsewhere, Australia’s S&P/ASX 200 dropped 1.2 per cent and Japan’s Topix index shed 0.3 per cent.
Investor optimism over the easing of economic lockdowns prompted by the coronavirus pandemic is at risk of being overshadowed by simmering tensions between the world’s two biggest economies.
Overnight, Wall Street’s S&P 500 index reversed gains of 1 per cent to close down 0.2 per cent, snapping a three-day winning streak for US stocks. The fall came after US President Donald Trump said he would hold a news conference regarding China on Friday after Beijing pushed ahead with the controversial legislation.
Washington this week began laying the groundwork to potentially remove Hong Kong’s special trade status after Mike Pompeo, secretary of state, said the US no longer viewed the Asian financial hub as autonomous from mainland China.
Futures markets tipped further losses when US stocks start trading later on Friday, with the S&P 500 currently expected to fall 0.5 per cent. The FTSE 100 was expected to drop 0.9 per cent.
However, mainland China’s equity markets were little affected by geopolitical frictions on Friday, with the CSI 300 of Shanghai- and Shenzhen-listed stocks rising 0.3 per cent.
The onshore exchange rate for the renminbi, which investors have been watching as US-China tensions rise, was 0.1 per cent weaker at Rmb7.1515 per dollar. That was after the People’s Bank of China set the currency’s trading band stronger than analysts had expected.
“Recent [renminbi] fixings by the PBoC suggest an effort to dampen volatility — not drive the currency lower,” said Larry Brainard, chief emerging markets economist at TS Lombard. He added that the currency was set for “periodic bursts of volatility . . . but not of continuing steady depreciation”.
Oil prices dropped on the prospect of further escalation in US-China tensions. Brent crude, the international benchmark, was down 0.5 per cent to $35.11 a barrel. US marker West Texas Intermediate fell 1 per cent to $33.36.