Asia: Markets enjoy much-needed rally but tariffs tensions reign

[HONG KONG] Shanghai led gains across Asian markets on Friday at the end of a torrid week for equities, with investors keeping a nervous eye on China-US trade talks and taking heart from positive comments Donald Trump on the prospects for a deal.

There was no comment from either side after the first day of high-stakes negotiations in Washington between Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

And while US tariffs are due to more than double on US$200 billion of imports at 0401 GMT - with China expected to retaliate - there are hopes the economic superpowers will be able to reach a deal to avert a trade war that could shatter global growth and batter markets.

After a week in which trading floors have been a sea of red, regional equities were on the up on Friday, with optimism boosted by Mr Trump saying he had received a "beautiful letter" from China's Xi Jinping and that it was "possible" to get a deal.

Shanghai, which lost more than seven per cent from Monday to Thursday, climbed more than two per cent in early trade, while Hong Kong piled on 1.7 per cent.

Tokyo went into the break 0.7 per cent higher, while Singapore also gained 0.7 per cent, Sydney added 0.3 per cent and Taipei rose 0.8 per cent.

Seoul jumped 0.8 per cent as investors brushed off news that North Korea had tested a long-range weapon, which is likely to raise tensions after the breakdown of denuclearisation talks with the United States.

'THE PEACE IS FRAGILE'

However, while markets are on the up, analysts said there remains a lot on uncertainty over the trade talks.

"Markets will be in a holding pattern as we await the outcome of the meeting," said Khoon Goh, head of Asia research at ANZ Bank. "If there is a breakdown and the tariffs go up, then we will see a risk-off tone in markets."

OANDA senior market analyst Jeffrey Halley said the fact that tariffs were to rise midway through the talks gave them "precious little time to come up with something that satisfies both sides".

Although markets are up, "the peace is fragile, and it won't take much today to panic investors into heading for the exit door en masse," he added.

Mr Halley also warned that while Mr Trump praised Mr Xi's letter it was hard "to see how either of these two presidents will ever manage to really share the toys and play nicely on the global stage".

In worrying sign, Hu Xijin, editor-in-chief of the Global Times - which is published by the Communist Party's People's Daily - cited a source familiar with the talks as saying there is "zero" chance of a deal before Friday.

"If it is that bad, the real suspense is whether the two sides will continue negotiations after Friday," Mr Hu said.

The slightly improved sentiment, and bargain-buying provided support to higher-yielding, riskier currencies - though the yuan continues to wallow around four-month lows.

AFP