Asian shares erased their gains, and the Yuan tumbled on Thursday owing to the growing worries over China’s planned security law for Hong Kong, which would result in a broader diplomatic confrontation with the U.S. MSCI’s broadest index of APAC shares outside Japan fell by around 0.35%. Market shares in Hong Kong also dropped by nearly 1.75%. Chinese stocks fell by about 0.55%. U.S. stock futures used their earlier gains to trade at nearly 0.17% higher. The major risk to the equities is the Sino-U.S. relationship, which is most likely to worsen after Mike Pompeo, U.S. Secretary of State, stated that Hong Kong no longer warranted any kind of special treatment under the U.S. law.
A corrective response of the U.S to China on the issue of Hong Kong security laws could result in a tit-for-tat reaction from Beijing, further affecting the ties between the two biggest economies of the world and impacting the global growth. President Trump announced that he would be announcing a response to China’s policies towards Hong Kong later this week. The U.S. government might suspend Hong Kong’s preferential tariff rates for exports to the country, which is comparatively a less severe response than formally canceling Hong Kong’s special status under the U.S. law.
Meanwhile, some share markets chose to focus on signs of recovery from the global crisis instead. Australian shares rose with a record high in more than two months after the central bank governor of the country strengthened hopes for a quick economic recovery. Japan’s Nikkei stock index also rose to its highest since late February as the investors and stakeholders celebrated the re-opening of economic activities after a significant fall in COVID-19 infections.
The S&P 500 closed broke the 3,000-mark for the first time in nearly 12 weeks on Wednesday, boosted by bank stocks, as investors hoped that the global economy would start recovering once it re-opens. The euro gained as well, reaching a fresh eight-week high at 1.1035 USD, driven by a 750 billion euro plan to aid virus-hit economies of the European Union. On the other hand, the Yuan recorded a low of 7.1966 per USD due to the growing uncertainty over Hong Kong’s future.