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Hang Seng in Free Fall as Geopolitical Tensions Hover

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  • The Hang Seng tumbled 2.0% today. The index is up a mere 1.9% this year and has underperformed most equity markets. The Hong Kong protests have played heavily on investors’ minds. Adding to the tensions, Donald Trump has signed bills supporting the protestors.
  • The Shanghai Composite also closed in the red today. It has now closed with losses for three consecutive weeks.
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Hang Seng

The Hang Seng fell more than 2% today. The optimism generated from Alibaba’s (BABA) successful listing has faded amid concerns over US-China relations. Donald Trump has signed bills supporting Hong Kong protestors. Not surprisingly, China lashed out at the US, and its ambassador lodged a complaint. China has been quite vocal about what it sees as an infringement on its territorial integrity. The US and China have different perceptions over Taiwan, Hong Kong, and Tibet. The South China Sea has been another point of contention in US-China relations.

Global stock markets

Earlier this week, Alibaba listed in Hong Kong. Its stock soared on the listing, but that optimism was short-lived. The Hang Seng, up only about 1.9% this year, has underperformed other major Asian markets, including mainland-listed stocks. The Shanghai Composite has risen 15.2% year-to-date but has closed with losses for three consecutive weeks now.

Meanwhile, US equity markets have been setting records. The Dow Jones and S&P 500 are trading near all-time highs. However, analysts don’t see much upside for US stock markets next year. For more analysis, read S&P 500 at Record Highs: Not Much Upside in 2020.

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Trade war and Hong Kong protests

The US-China trade war has impacted both Hong Kong and mainland China-listed stocks, and the Hong Kong protests have also taken a toll on the Hang Seng. With the US now formally siding with the Hong Kong protestors, things might only worsen.

However, stirring the pot in Hong Kong could also be a US ploy to extract more trade concessions from China. Incidentally, whereas Section 232 steel tariffs were intended to protect US national security, they eventually become a pawn in trade negotiations. The Trump administration has relaxed the steel tariffs to make way for the United States–Mexico–Canada Agreement.

Therefore, while investors are apprehensive over US-China trade relations, the US support for Hong Kong protestors may not block the countries from reaching a trade deal. Additionally, a US-China trade deal may not necessarily cure the sagging global economy. To learn more, read US-China Trade War: There’s No Miracle Deal.

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