U.S. And Chinese Stocks Under Pressure, Tensions Escalate After Pelosi’s Visit To Taiwan

By admin On Aug 2, 2022

Topline

Stocks were under pressure after House Speaker Nancy Pelosi visited the democratically governed island of Taiwan on Tuesday, a move which has led to rising tensions with China and that has rattled investors concerned about additional geopolitical uncertainty in markets.

Rising U.S.-China tensions are “clearly making investors very nervous.”

J. Scott Applewhite/Associated Press

Key Facts

U.S. stocks opened lower but pared back some losses: The Dow Jones Industrial Average was down 0.2%, nearly 100 points, while the S&P 500 rose 0.3% and the tech-heavy Nasdaq Composite 0.8%.

Global markets fell on Tuesday ahead of a planned visit to Taiwan by U.S. House Speaker Nancy Pelosi (D-Calif.), which is the first visit to the island by an official in her position since Newt Gingrich in 1997.

Pelosi arrived in Taiwan on Tuesday evening local time to meet with government officials there, despite the Chinese government warning her not to do so and threatening “strong countermeasures.”

China has historically claimed Taiwan as part of its territory: In addition to condemning Pelosi’s upcoming visit, Beijing has sent several warplanes to buzz the dividing line of the Taiwan strait in a show of force.

Chinese stocks also moved lower on Tuesday amid the rising tensions, with the Shanghai Composite index and Hong Kong’s Hang Seng index both falling more than 2%, while big name stocks like Baidu and NetEase each fell roughly 4%.

With Taiwan serving as an international hub for semiconductor manufacturing, global semiconductor stocks also fell, with the likes of Nvidia and Micron Technology falling nearly 1% and 1.5%, respectively.

Crucial Quote:

“We’re seeing more risk aversion on Tuesday as Nancy Pelosi’s trip to Taiwan generates numerous unsettling headlines at a time of strained ties between the U.S. and China,” says Craig Erlam, senior market analyst at Oanda. With threats from Beijing continuing on Tuesday—just hours ahead of Pelosi’s expected arrival, that is “clearly making investors very nervous.”

Tangent:

Amid the added geopolitical uncertainty in markets, nervous investors also continued to assess second quarter earnings, with shares of Caterpillar falling 3% after the construction and manufacturing giant reported lackluster results. Shares of ride-sharing giant Uber jumped 15%, meanwhile, after the company reported higher-than-expected revenue and for the first time, positive quarterly free cash flow.

What To Watch For:

Stocks could rebound after Pelosi lands in Taiwan on Tuesday, JPMorgan analysts said in a note on Tuesday. “If there is no immediate reaction [from China], you may see markets move higher,” the firm predicts, noting that several other U.S. senators have visited Taiwan this year. “Some of the Chinese response to those visits were military drills in the Taiwan Strait and military plane flyovers of Taiwan.”