Deal or no deal?
When the leader falls, the army surrenders. On May 6, Asian markets were impacted by a single tweet about China from President Trump.
On May 5, President Trump tweeted that the duty on $200 billion worth of Chinese goods will increase by 15 percentage points from 10% to 25%. Another $325 billion worth of goods might come in light of the tariffs, which raised concerns about a full-blown trade war. The US-China negotiations appear to be heading nowhere except the war zone.
Since China is expected to respond with more tariffs on US goods, the situation will likely get uglier in the coming days. The news might be another negotiation tactic from President Trump. Hopefully, the situation won’t result in a global slowdown.
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China and Hong Kong markets
On May 6, the Shanghai Stock Exchange Composite Index closed at 2,906.45—5.6% below the close on May 3. The SSE 50, an index of 50 bluechip Chinese stocks, fell 4.8%. The Hang Seng Index, Hong Kong’s key index, fell 2.93%. The Hong Kong Heavy iShares MSCI Hong Kong ETF (EWH) is expected to follow the Hong Kong market when it starts trading in the United States.
What happens to your China ETFs?
The Direxion Daily China 3x Bull Shares (YINN), which tracks and provides 3x the returns of the FTSE China 50 Index, might be the biggest loss of the day with almost negative 15% returns. The Direxion Daily China 3x Bear Shares (YANG), which provides the opposite return of YINN, might end up being the winning bet with almost 15% returns for the day.
None of the sectors were spared by the Chinese market route on May 6. All of the China ETFs, sectoral and broad-based, are expected to register a fall on May 6. The ETFs include the large-cap ETFs like the iShares China Large-Cap ETF (FXI), the tech-heavy KraneShares CSI China Internet ETF (KWEB), and the more broad-based iShares MSCI China ETF (MCHI).
The FTSE Straits Times Index closed 3% lower at 3,290.62. The Development Bank of Singapore analysts expect the tariffs to create a knee-jerk impact, according to a report published in the Straits Times in Singapore. The iShares MSCI Singapore ETF (EWS), which is heavy on banking stocks, is expected to post a bigger slide. Banking stocks have underperformed the index. The JPMorgan BetaBuilders Developed Asia ex-Japan ETF (BBAX) is also invested in Singapore equities apart from Australian and Hong Kong stocks. Since all of these markets are down, the ETF will likely fall as well.