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Asian stocks falter on Wednesday as trade tensions grow

Asian stocks falter on Wednesday as trade tensions grow

Asian stocks ended Wednesday in negative territory as the looming tariff deadline caused jitters and wiped out gains made late in the session.

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By Staff Journalist 05.07.2018

Asian stocks ended Wednesday in negative territory as the looming tariff deadline caused jitters and wiped out gains made late in the session. Trade tensions continue to take center stage, and there are no signs of the US or China backing down ahead of the expected arrival of auto tariffs on Friday.

The Shanghai composite tracked lower in midweek, continuing its recent trend. It fell 0.94% to finish the day at 2,760.59 after not sustaining gains made during the earlier session. The smaller Shenzhen fared worse with a more notable drop of 1.96% on Wednesday. 

There was a third consecutive session of declines in Japan as the Nikkei 225 contracted by 0.31% to finish at 21,717.04. The electric appliances sector struggled and ended up sliding by a sizeable 1.9%, while Tokyo Electron stocks slumped by 4.44%. In contrast, utilities and mining saw gains.

The faltering theme continued with South Korean stocks, which did not sustain early gains. The Kospi closed at 2,265.46, a 0.32% fall. In Australia, most sectors also ended the day lower, as the S&P/ASX 200 saw a drop of 0.43% to finish at 6,183.40.

Meanwhile, in Hong Kong, both the real estate and energy sectors saw the sharpest declines on Wednesday, and the Hang Seng Index saw back-to-back losses with a 1.08% fall just before the close of play.

The big news in Malaysia was the arrest of former PM Najib Razak, who is involved in a high-profile scandal at state fund 1Malaysia Development Berhad, which has resulted in charges. Domestic investors rallied, and the KLCI saw a 0.41% increase in trading value by the end of the day. 

The specter of trade tariffs continues to loom large in Asia, but Chinese authorities have insisted that they won’t “fire the first shots” in the ongoing dispute with the United States. Auto tariffs are set to take effect from the start of trading on 6 July, and the tension ahead of Friday is causing stock market jitters across the globe.

The Shenzhen Composite and Shanghai Composite are now in a selling market following significant losses in recent days, and experts believe that a turnaround is unlikely. Invesco Chief Global Market Strategist Kristina Hooper said that a worsening trade dispute could force Chinese stocks to trade even lower, so investors will be keeping a close eye on developments during the next 48 hours. 

“I wouldn't expect any kind of dramatic recovery [for China markets], but I would expect some fluctuations around the current level... I think, though, what we've seen with the stock market in China has reflected more an economic slowdown than fears about trade wars," Hooper said.

National Australia Bank Director of Economics David de Garis added: "Further news from the Chinese side and in the US suggest that the trade issue remains unresolved, with the atmospherics remaining testy.”

The yuan stabilized against the dollar on Wednesday after hitting its lowest level for almost a year on Tuesday. The yuan was trading at 6,6035 just before the close of play, up around 0.5% on the earlier session.

China’s central bank made it clear earlier this week that it is not implementing any measures to drive the currency down, with PBOC Governor Yi Gang adding that the yuan will remain at a reasonable level for the foreseeable future. The US dollar softened against the yen on Wednesday, ending a run of recent gains.

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