Asia report: Stocks mostly weaker on Taiwan tensions, RBA hikes rates

Stock markets were mostly lower at the close in Asia on Tuesday, with Hong Kong leading the losses as geopolitical tensions tightened over the looming visit of US House Speaker Nancy Pelosi to Taiwan.

In Japan, the Nikkei 225 was down 1.42% to 27,594.73, as the yen strengthened 0.55% on the dollar to last trade at JPY 130.89.

Uniqlo owner Fast Retailing was up 0.72%, while robotics specialist Fanuc lost 2.16% and tech investing giant SoftBank Group skidded 0.98%.

The broader Topix index lost 1.77% by the end of trading in Tokyo, settling at 1,925.49.

On the mainland, the Shanghai Composite slid 2.26% to 3,186.27, and the technology-centric Shenzhen Component was 2.37% weaker at 12,120.02.

South Korea’s Kospi was 0.52% lower at 2,439.62, while the Hang Seng Index in Hong Kong tumbled 2.36% to 19,689.21.

Technology plays were among the leading losers in the special administrative region, with Alibaba Group down 2.85% and Meituan falling 2.11%.

The Hang Seng Tech Index ended the day 3.01% weaker in Hong Kong.

Seoul’s blue-chip technology stocks were in a mixed state, meanwhile, with Samsung Electronics up 0.65%, while SK Hynix lost 0.62%.

Fresh data out of South Korea showed consumer prices rising 6.3% year-on-year in July, in line with expectations, but making for the biggest rise in inflation since November 1998.

Geopolitical tensions around Taiwan were heating up in the region, after reports emerged overnight that Nancy Pelosi was set to go ahead with her visit to Taiwan.

Taiwan is governed by the Republic of China, which previously ruled all of China’s territory until it retreated to Taiwan when the Chinese Communist Party gained control of the mainland during the Civil War in 1949.

The People’s Republic of China, meanwhile, has viewed Taiwan as a rebel province and part of its territory since that war.

A complex status-quo has seen the People’s Republic recognised as the legitimate state of China by the United Nations and the vast majority of its members since the 1970s, while Taiwan has limited diplomatic recognition and maintains relations through trade and ‘friendship’-focussed civilian channels.

The island remains a key part of the global technology sector, however, as a behemoth in the design and complicated manufacture of computer chips.

Visits to Taiwan by US officials have been few and far between since official diplomatic relations between Taipei and Washington were severed in 1979, with the last sitting House Speaker to do so being Newt Gingrich in 1997.

The prospect of Californian Democrat Pelosi making a trip to the island was met with a hardline response from Beijing in recent days, with the politburo warning that its military would “never sit idly by” in upholding “China’s sovereignty and territorial integrity”.

“These reports prompted some dark threats from China that the People’s Liberation Army would not stand idly if she attempted to visit what is considered by China their sovereign territory without permission,” said CMC Markets chief market analyst Michael Hewson.

“These tensions have spilled over into today’s Asia session, as we look ahead to a lower European open.”

Oil prices were on the back foot as the region went to bed, with Brent crude last down 0.61% on ICE at $99.42 per barrel, and West Texas Intermediate off 0.68% at $93.25 on NYMEX.

In Australia, the S&P/ASX 200 eked out gains of 0.07% to 6,998.10, as the Reserve Bank of Australia sated market expectations by tacking 50 basis points on to interest rates.

The central bank raised its cash rate target to 1.85%, with governor Philip Lowe noting that inflation in the country was now at its highest level since the early 1990s, with prices rising 6.1% year-on-year in the June quarter.

“The board places a high priority on the return of inflation to the 2% to 3% range over time, while keeping the economy on an even keel,” Lowe said in his statement.

“The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments.

“The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia's invasion of Ukraine and the Covid containment measures in China.”

Analysts at TD Securities noted that the Reserve Bank had dialled back its rhetoric on returning inflation back to its target range, replacing the phrase ‘next year’ with ‘over time’.

“If the [Reserve] Bank really wanted to get on top of inflation and return it back into the 2% to 3% target band next year, it could raise rates aggressively,” TD Securities said.

“However the fact that it expects inflation to remain well above its target band in 2023 at 4% implies the bank is in no pressing rush to normalise monetary conditions rapidly.

“In other words, rapid 50-basis point hikes are becoming less likely, as hiking aggressively could adversely impact growth.”

Across the Tasman Sea, New Zealand’s S&P/NZX 50 managed gains of 0.06% to 11,532.46, with specialist dairy exporter A2 Milk popping 8.6% earlier before trading was halted.

After the close, the company responded to press speculation that it was close to being approved to export to the United States amid a severe infant formula shortage stateside, but said its application was still under review with the Food and Drug Administration.

The down under dollars were both weaker against the greenback, with the Aussie last off 1.39% at AUD 1.4436, and the Kiwi retreating 0.66% to NZD 1.5899.

Reporting by Josh White at Sharecast.com.