Asia: Shares bounce from 2-month lows as US-China trade war fears ease

{TOKYO] Asian shares bounced from two-month lows on Thursday as world equities recovered from a sell-off triggered by escalating Sino-US trade tensions, with investors hoping a full-blown trade war between the world's two biggest economies can be averted.

Sentiment was lifted as the United States expressed willingness to negotiate a resolution to the trade fight after the proposed US tariffs on US$50 billion in Chinese goods prompted a quick response from Beijing that it would retaliate by targeting key American imports.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 per cent, a day after it hit its lowest level in almost two month. Japan's Nikkei gained 1.2 per cent.

Markets in mainland China, and those in Hong Kong and Taiwan, are closed on Thursday. On Wall Street on Wednesday, the S&P 500 gained 1.16 per cent and the Nasdaq Composite added 1.45 per cent, clawing back heavy losses of more than 1.5 per cent right from earlier in the US session.

"I think that the substance of trade restrictions and their real impact will be far less than the headlines," said Jeffery Becker, Chairman and CEO at Jennison Associates in New York. "US and Chinese cross border trade has grown significantly over the last decade and economic inter-dependence runs very deep, deeper than the actual trade numbers. And both countries have a lot to lose by escalating trade war."

Many investors viewed US President Donald Trump's latest tariffs plan as a part of his negotiation strategy, rather than his final policy.

Indeed, Trump's top economic adviser, Larry Kudlow, when asked whether the latest US tariffs plan may never go into effect and may be a negotiating tactic, told reporters: "Yes, it's possible. It's part of the process." He called the announcements by the two countries mere opening proposals.

The trade actions will not be carried out immediately, giving the two countries room for manoeuvrer.

The proposed 25 per cent US tariffs on some 1,300 industrial technology, transport and medical products from China now see a public comment and consultation period that is expected to last around two months.

"Our view on the China-US trade situation is that typically, the initial headline is worse than what we expect the implementation of ultimately turn out to be. So our expectation is it will remain tense situation but will not break out and to an all out trade war," said Lillard, chief investment officer at PGIM Fixed Income in Newark, New Jersey.

Optimists also argued that the global economy is currently running so strong that it could cope with the impact of the proposed tariffs, which cover a fraction on the world's trade.

Yet others also cautioned that uncertainties caused by fears of a trade war could keep many companies from capital expenditures in the near term.

Concerns about trade wars could also hit some specific assets, such as US soybeans and corn, which fell 2.2 per cent and 1.9 per cent respectively on Wednesday after China readied tariffs against them.

Oil prices bounced back in tandem with global share prices, and on a surprise draw in US crude stockpiles.

US crude futures traded at US$63.71 per barrel, up 0.5 per cent.

In the currency market, the recovery in risk appetite helped to boost the dollar against the yen. The US currency changed hands at 106.76 yen, near last week's high of 107.015.

The euro traded at US$1.2286, off Tuesday's two-week low of US$1.2254.

The Canadian dollar hit five-week high of C$1.2758 per US dollar boosted by optimism on a Nafta trade deal.

REUTERS