Hong Kong led losses as Asian markets tanked yesterday after US lawmakers passed a bill supporting the city’s civil rights, sparking fears it could derail delicate China-US trade talks.
Investors already nervous about the progress of negotiations were sent running for the hills after both houses of Congress overwhelmingly agreed to the bill and sent it to be signed by President Donald Trump.
The Hong Kong Human Rights and Democracy Act requires the president to annually review the city’s favourable trade status and threatens to revoke it if the semi-autonomous territory’s freedoms are quashed.
They also passed legislation banning sales of tear gas, rubber bullets and other equipment used by Hong Kong security forces in putting down the protests, which are now in their sixth month.
Beijing said yesterday it “strongly” condemned the move and was ready to take measures to “resolutely fight back”.
Officials had already summoned a top US diplomat on Wednesday over the Senate’s passing of the bill and warned of “strong” countermeasures should it be signed into law.
The White House has not threatened to veto the measure and Trump is expected to sign it, according to a source familiar with the matter.
The move comes just as US and Chinese negotiators try to put the finishing touches to a much-vaunted mini trade deal that is seen as the first part of a wider agreement.
Markets had been rallying in recent weeks on optimism it will be signed off soon.
“China’s strong response to the Hong Kong bill news is something to be taken seriously in terms of how it impacts on the trade discussions,” said National Australia Bank’s Ray Attrill.
“Who knows where we land here? All we’d say for now is that we have a good idea where markets will reprice if and when a phase-one deal gets done and depending on whether it includes some tariff rollbacks.
“But what happens between now and then is frankly anyone’s guess.”
Hong Kong shares tanked more than 2% at one point before clawing back slightly to sit 1.6% down by the close.
But there remains a lot of nervousness that the key trade and financial hub could take a heavy hit if its status is revoked, leaving it exposed to similar US tariffs to the mainland.
Tokyo ended 0.5% lower at 23,038.58 points, Hong Kong closed at 26,466.88 points and Shanghai finished 0.3% off at 2,903.64 points.
Sydney, Singapore, Seoul, Jakarta and Taipei also retreated but were off early lows.
Manila shed more than 1%.
In early trade, London fell 0.5%, Frankfurt shed 0.6% and Paris retreated 0.7%.
“It is clear that this pushes the Chinese negotiation and makes it difficult.
I think that’s one thing we can depend on,” David Kotok at Cumberland Advisors told Bloomberg TV.
“I don’t see a trade deal coming.
I think anything we get is minor, small, and a long-term relationship between the US and China has been permanently injured.”
Adding to the downbeat mood was a Reuters report saying the partial trade deal may not be completed before the end of the year.
And Trump said that while talks were ongoing, he felt no pressure to strike a bargain, saying: “I don’t think they’ve stepped up.”
That came a day after he warned he could raise tariffs further on China if the deal is not finalised.
The uncertainty caused a flight to safe-haven investments, with the yen — a go-to unit in times of turmoil — rising against the dollar, while the greenback jumped across the board versus high-yielding currencies such as the South Korean won and Mexican peso.
Oil prices dipped on the trade worries, a day after surging on data showing a smaller-than-forecast rise in US stockpiles.
WTI piled on 3.4% and Brent climbed 2.4% Wednesday.
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