US-China trade war turmoil and global economic gloom cast a dark shadow on Asian equity markets

US-China trade tensions and slowdowns in major economies have spurred recent market volatility

Until an end to the trade war is in sight, tariff concessions and looser monetary policy from Asian central banks may provide respite, but not a rescue

Reading Time:3 minutes

An investor monitors stock prices at a brokerage house in Beijing on August 20, when Asian shares edged higher after Wall Street rallied on the US decision to give Chinese telecoms giant Huawei another 90 days to buy equipment from American suppliers. Photo: AP

Published: 3:01pm, 23 Aug 2019Updated: 10:31pm, 23 Aug 2019

With many investors on their summer holidays, it is natural to think August should be a quiet time for financial markets. But this August has been an exception.

One key cause of market volatility has been the intensification of US-China trade tensions, which has rattled investorsâ nerves. The trade truce reached by the two sides on the sidelines of the Osaka G20 summit was broken, as US President Donald Trump threatened to slap 10 per cent tariffs on the remaining US$300 billion of Chinese imports.

This was quickly followed by the Chinese authoritiesâ response of allowing the US dollar exchange rate to break above the psychologically important 7 yuan threshold on August 5, in part reflecting low confidence of reaching a trade deal in the near term.

To make things worse, the US officially labelled China a currency manipulator the next day, although the labelling itself is largely symbolic.

Equity markets around the world plunged as the series of tit-for-tat trade actions between the two nations seemingly raised the risks of a full-blown trade war. In particular, emerging Asian equities were badly hit, with the MSCI Asia ex-Japan index down by around 5 per cent in the first seven days of August.

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