Asian investors grow wary as Trump raises tensions over Hong Kong

Asian share markets wobbled on Thursday as investors were shaken by concerns that US President Donald Trump’s official support for pro-democracy protesters in Hong Kong would stymie the completion of a US-China trade deal by the end of the year.

Trump on Wednesday signed into law legislation backing pro-democracy protesters in Hong Kong, which prompted a warning from China’s Foreign Ministry of unspecified “firm countermeasures” in response.

That put a lid on a week of gains for MSCI’s broadest index of Asia-Pacific shares outside Japan. The benchmark fell almost 0.1 percent, despite positive US economic data lifting Wall Street to record highs overnight.

Japan’s Nikkei, Hong Kong’s Hang Seng and Shanghai blue chips flitted in and out of positive territory, as momentum ebbed.

“I think it could easily get a lot worse,” said Kay Van-Petersen, global macro strategist at Saxo Capital Markets in Singapore, as investors await more details on China’s response.

“We could potentially see a greater chance of a move downwards based on what happens in the next 24-48 hours.”

The next round of US tariffs on Chinese goods is due to take effect on December 15.

The US dollar and trade-exposed currencies were spurned for safe-havens such as the Japanese yen after Trump signed the Hong Kong bills into law.

The laws are viewed as supportive for anti-government protesters in the city, since they threaten sanctions for human rights violations and seek to safeguard Hong Kong’s autonomy.

But the move was denounced by China as interference in domestic affairs.

“It’s displeasing to the Chinese side,” said Westpac FX analyst Imre Speizer. “And we are getting close to the point when this deal needs to get signed … the market’s reacting to it as though it might put a snag in the works.”

On the economic front, however, China is pushing ahead with its own reforms to build a market-based, globalised business environment and break investment barriers for companies, Premier Li Keqiang was quoted as saying during a cabinet meeting on Wednesday.

Economic growth slowed to 6 percent year on year in the third quarter of 2019, the weakest pace in more than 25 years, with the economy hit by a punishing trade war with the US.

Li was also quoted as saying in a summary of the Cabinet meeting published on China’s official government website that taxes would continue to be cut as part of efforts to stimulate the slowing economy.

“Energizing the market is a key step in countering the downward economic pressure. We will continue with the tax cuts and reform of government functions for a better business environment in China,” Li said.

The summary said that new measures to “optimise” the business environment would start on January 1.

Earlier, stock markets were buoyed by comments from Trump that the trade deal with China was in its “final throes” and could soon be signed.

Coupled with strong US economic growth data, which showed an improvement in the third quarter, major US stock indexes climbed to all-time highs on Wednesday. US markets are closed for Thanksgiving on Thursday.

Other data showed the number of Americans filing claims for jobless benefits fell. There are signs the downturn in business investment may be drawing to a close and the US Federal Reserve said the outlook was bright.