Asia Picks Up the Pieces After Trade Sell-off

(Bloomberg) -- Investors are doing their best to feel their way forward today with the trade dust still far from settled after Asian markets were rocked Monday by a breakdown in talks between the U.S. and China.

Though President Donald Trump's top trade negotiator confirmed plans to proceed with a tariff hike on Chinese goods on Friday, the next-day reaction in Asia has been fairly sanguine as investors tried to extrapolate the broader U.S. strategy. On Wall Street, equities pared losses to close modestly lower overnight, though futures show some weakness ahead as traders brace for more volatility.

“I believe he is doing what he always does, the Art of the Deal,” said Nader Naeimi, a Sydney-based fund manager at AMP Capital Investors Ltd., in an email Monday, referring to Trump's well-known book. “Play hard ball and then get a deal somewhere in between. The problem this time is there are real cracks in the U.S. and he may not have the luxury of time before the cracks become gaping wide.”

Investors in Asia are catching their breath. The MSCI Asia Pacific Index eked out a small loss as a post-Golden Week decline in Japanese shares weighed on the benchmark, while Chinese and Australian stocks had a modest rebound. Losses in Japan were not to the extent some expected as traders in Tokyo played catch-up on more than a week of news and market positioning. Korea's Kospi Index also retreated as Seoul returned from a Monday holiday.

The Shanghai Composite Index is up about 0.3 percent on volume 30 percent below average at this time of the day, a small step forward after Chinese stocks erased $487 billion in value yesterday.

At the moment, trade progress appears to have taken a step back. U.S. Trade Representative Robert Lighthizer said the U.S. plans to raise tariffs on Chinese goods on Friday, confirming Trump's tweet threats.

The U.S. is accusing Beijing of backpedaling on commitments it made during negotiations. Lighthizer and Treasury Secretary Steven Mnuchin told reporters Monday it became apparent the Chinese were backsliding during their visit to Beijing last week. Even so, trade talks will continue with the Chinese delegation still set to visit Washington Thursday and Friday, Lighthizer said.

Stock Market Summary

• MSCI Asia Pacific Index down 0.2%
• Japan's Topix index down about 1%; Nikkei 225 down 1.4%
• Hong Kong's Hang Seng Index up 0.1%; Hang Seng China Enterprises down 0.1%; Shanghai Composite up 0.3%; CSI 300 up 0.8%
• Taiwan's Taiex index up 0.9%
• South Korea's Kospi index down 1.2%; Kospi 200 down 1.2%
• Australia's S&P/ASX 200 up 0.6%; New Zealand's S&P/NZX 50 up 0.7%
• India's S&P BSE Sensex Index up 0.5%; NSE Nifty 50 up 0.4%
• Singapore's Straits Times Index up 0.2%; Malaysia's KLCI up 0.5%; Philippine Stock Exchange Index up 0.7%; Jakarta Composite up 0.7%; Thailand's SET down 0.5%; Vietnam's VN Index up 0.1%
• S&P 500 e-mini futures down 0.7% after index closed down about 0.5% in last session

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen, Divya Balji

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