Stocks fall as China warns against Nancy Pelosi’s visit to Taiwan

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Global stocks edged lower on Tuesday as the prospect of heightened US-China tensions spooked investors.

Wall Street’s S&P 500 share lost 0.5 per cent in early New York dealings on Tuesday. The tech-heavy Nasdaq Composite index also fell 0.4 per cent, following heavier falls for equity markets in Asia.

With House of Representatives Speaker Nancy Pelosi’s expected to arrive in Taiwan on Tuesday, China ratcheted up its military activity in the area. Several Chinese fighter jets flew close to the median line that divides the Taiwan Strait, while Russia accused the US of “provoking” Beijing.

Shares in US-listed technology companies that rely on China for a significant proportion of their sales dipped, with the Philadelphia Semiconductor index falling 0.8 per cent. ASML, a Dutch maker of machines used in the production of advanced semiconductors, was among the biggest decliners, down 2.2 per cent. Intel, a big US chipmaker, fell 1.3 per cent.

“There is speculation, among other things, that the Chinese may make a military mark and/or impose some form of economic sanctions,” Seyran Naib, a strategist at SEB, commented in a note to clients.

“Geopolitics was already very much on people’s minds, given the Russia-Ukraine situation,” said Rosie Bullard, portfolio manager at James Hambro & Partners. “If we have more disruption to trade as a result of heightened tensions, markets will find that difficult.

The yield on the 10-year US Treasury note was steady at 2.6 per cent, near a four-month low. The two-year Treasury yield traded at 2.9 per cent, forming a sharp inverted yield curve pattern, which has historically preceded recessions. Bond yields move in the opposite direction to prices.

Germany’s 10-year Bund yield fell 0.06 percentage points to 0.71 per cent, also its lowest since early April.

In Europe on Tuesday, the regional Stoxx 600 share index fell 0.3 per cent and London’s FTSE 100 traded flat.

Chinese stocks had fallen heavily early in the session, with Hong Kong’s benchmark Hang Seng index dropping as much as 3.2 per cent, later trimming some of its losses.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped as much as 2.8 per cent. Taiwan’s Taiex and Japan’s Topix closed 1.6 per cent and 1.8 per cent lower respectively.

Analysts warned that thin summer trading conditions could also exacerbate price moves in the coming days if geopolitical tensions worsened.

“As market liquidity tends to dry up over the summer, any reactions will be amplified,” said Maarten Geerdink, head of European equities at NN Investment Partners.

The FTSE All-World index of global shares has fallen 15.6 per cent so far this year, dragged lower by Russia’s full-scale invasion of Ukraine and a surge in inflation driven by sanctions and trade disruptions that have propelled central banks to raise interest rates.

Japan’s yen climbed as much as 0.9 per cent to ¥130.39 against the dollar on Tuesday, its strongest level in two months, reflecting haven buying.

The euro lost 0.6 per cent against the dollar, to just over $1.02.

Brent crude, the international oil benchmark, traded at about $100 a barrel, having not settled below this level since mid-July.

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