Asia shares bounce from 2-month lows as US-China trade war fears ease

PUBLISHED : Thursday, 05 April, 2018, 12:47pm
UPDATED : Thursday, 05 April, 2018, 12:47pm

Asian shares bounced from two-month lows on Thursday as world equities recovered from a sell-off triggered by escalating China-US trade tensions, with investors hoping a full-blown trade war between the world’s two biggest economies can be averted.

Sentiment was lifted as the United States expressed willingness to negotiate a resolution to the trade fight after its proposed tariffs on US$50 billion of Chinese goods prompted a quick response from Beijing that it would retaliate by targeting key American imports.

China targets US soybeans, cars, planes with new 25 per cent tariffs, but leaves room for negotiation

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 per cent, a day after it hit its lowest level in almost two months. Japan’s Nikkei gained 1.2 per cent.

Markets in mainland China, and those in Hong Kong and Taiwan, are closed on Thursday. On Wall Street on Wednesday, the S&P 500 gained 1.16 per cent and the Nasdaq Composite added 1.45 per cent, clawing back heavy losses of more than 1.5 per cent from earlier in the session.

“I think that the substance of trade restrictions and their real impact will be far less than the headlines,” said Jeffery Becker, chairman and CEO at Jennison Associates in New York. “US and Chinese cross-border trade has grown significantly over the last decade and economic interdependence runs very deep, deeper than the actual trade numbers. And both countries have a lot to lose by escalating trade war.”

Many investors viewed US President Donald Trump’s latest tariffs plan as a part of his negotiation strategy, rather than his final policy.

Indeed, Trump’s top economic adviser, Larry Kudlow, when asked whether the latest US tariffs plan may never go into effect and may be a negotiating tactic, told reporters: “Yes, it’s possible. It’s part of the process.” He called the announcements by the two countries mere opening proposals.

The trade actions will not be carried out immediately, giving the two countries room for manoeuvre.

The proposed 25 per cent US tariffs on some 1,300 industrial technology, transport and medical products from China now see a public comment and consultation period that is expected to last around two months.

Who will be the winners and losers in a China-US trade war?

Optimists argued that the global economy is currently running so strong that it could cope with the impact of the proposed tariffs, which cover a fraction on the world’s trade.

Yet others also cautioned that uncertainties caused by fears of a trade war could keep many companies from capital expenditures in the near term.

Concerns about trade wars could also hit some specific assets, such as US soybeans and corn, which fell 2.2 per cent and 1.9 per cent respectively on Wednesday after China readied tariffs against them.

Oil prices bounced back in tandem with global share prices, and on a surprise draw in US crude stockpiles.

US crude futures traded at $63.71 per barrel, up 0.5 per cent.

In the currency market, the recovery in risk appetite helped to boost the dollar against the yen. The US currency changed hands at 106.76 yen, near last week’s high of 107.015.

The euro traded at $1.2286, off Tuesday’s two-week low of $1.2254.

The Canadian dollar hit a five-week high of C$1.2758 per US dollar, boosted by optimism on a Nafta trade deal.