Asian stocks mostly suffered sharp losses on Wednesday, as investors become more anxious about the prospect of the United States and China reaching a deal to end the trade war.
Hong Kong’s Hang Seng ended down 1.3%, the leading decliner among major markets in Asia. Japan’s Nikkei 225 closed 1.1% lower. China’s Shanghai Composite shed 0.2%.
Beijing warned that Tuesday’s passage of a bill in the US House of Representatives calling for sanctions on China over reports of mass detention centers in Xinjiang would affect bilateral relations in “important areas.”
“Do you think we will stay indifferent if the US side has acted against China’s interests? ” said Hua Chunying, a spokesperson for China’s Ministry of Foreign Affairs, on Wednesday.
Another bill signed by President Donald Trump last week supporting Hong Kong protesters and the one on Xinjiang both “complicate a near-term trade deal,” Citi analysts said in a report.
Optimism about a trade truce was already fading after President Trump on Tuesday suggested to reporters in London that a deal with Beijing might come much later than many expected, saying “in some ways I think it’s better to wait for after the election, if you want to know the truth.”
That contradicted remarks made last month, when Trump said the United States and China are “potentially very close” to striking a deal.
Separately, US Commerce Secretary Wilbur Ross told CNBC that delaying a trade deal could take leverage from China. Ross added that it was important the president made clear that he wasn’t under any time pressure to get a deal done.
The secretary also said that US tariffs on Chinese exports would continue unless there was a deal. The next round of tariffs is set to take effect on December 15.
Given recent investor optimism about US-China trade talks, the latest headlines are “extremely bitter pills” for the market to swallow, according to Steven Innes, chief Asia market strategist for AxiTrader.
The Trump administration appears to be “applying maximum pressure” on China and hinting that the deal could be worse post-election 2020 than the current one on the table, he said.
The re-escalation of US-China trade tensions have dented investor sentiment in Asia, according to ING economists in a note on Wednesday.
“President Trump has dashed hopes of a phase one trade deal by mid-December and also hinted at ‘no deal’ until after 2020 elections, implying a prolonged uncertainty well into the next year,” they said.
Separately, investor sentiment in Hong Kong continues to be dragged down by poor economic data. Business activity in the city suffered its biggest contraction in 21 years last month, weighed down by “escalating political unrest”, according to a survey by IHS Markit Wednesday.
— CNN’s Xiong Yong, Michelle Toh, and Anneken Tappe contributed to this report.