Hang Seng plummets 1.7%, STI drops 0.9% in Asia market rout on fresh US-China tariff flare-up

[SINGAPORE] Selling hit Asia-Pacific markets on Monday (Oct 13) following the latest salvo in the trade war between the US and China.

As at 4 pm, Singapore’s Straits Times Index (STI) was down about 0.9 per cent, while Hong Kong’s Hang Seng Index slumped as much as 3.1 per cent as at 11.40 am before paring some of the losses to be 1.7 per cent down.

Analysts broadly saw the latest flare-up as political posturing rather than a lasting escalation and expect markets will likely stabilise amid selective risks and longer-term opportunities. Most expect tensions to ease once rhetoric subsides, though they cautioned that de-coupling could accelerate and more export front-loading could follow as firms brace for potential supply disruptions.

In mainland China, the Shanghai Stock Exchange Composite Index fell 3.3 per cent as at 9.45 am, before paring some losses to close at 0.2 per cent lower. The CSI300 tumbled 4.5 per cent initially but recouped most of the losses to close 0.5 per cent down.

South Korea’s Kospi was down as much as 1.5 per cent as at 9.35 am before paring some losses to close 0.7 per cent down. Australia’s ASX 200 fell 0.8 per cent over the day.

Markets in Japan were closed on Monday for a holiday.

US President Donald Trump on Oct 11 said that he would impose a fresh 100 per cent tariff on China, on top of existing levies, and export controls on “any and all critical software” starting from Nov 1. This came after an Oct 10 threat of trade action against China in response to “hostile” export controls Beijing placed on rare-earth minerals.

Beijing on Oct 12 said it will retaliate if Trump does not back down, according to state news agency Xinhua.

Trump’s planned tariffs will see import taxes on Chinese goods rise to 130 per cent from 30 per cent, slightly under the 145 per cent level imposed earlier this year that was later reduced.

Trump later posted a statement on his social media platform Truth Social that hinted Chinese President Xi Jinping might have a way to back down and suggested that a full trade war would hurt China.

Volatility and losses likely short-term, China holds ‘escalation dominance’

Citi analysts on Monday suggested that stock volatility should be lower than during the US reciprocal tariffs in the second quarter of 2025 “because the new tariff only applies to exporters directly exporting to the US from China”.

Morningstar’s Asia equity market strategist Kai Wang said the looming threat “could be short-lived” and offered investors a chance to buy China stocks at a relative discount.

He added that the US government shutdown is also increasingly dampening consumer sentiment in the US, which implies Trump will want to avoid re-escalating foreign policy issues without solving the domestic shutdown first.

“Riskier assets such as Bitcoin and Nasdaq futures are also up 4 and 2 per cent, respectively, since the US market close on Friday, while S&P futures were up 1.3 per cent as at 10 am Hong Kong time, suggesting that investor sentiment remains positive,” said Wang.

The belief that the latest hits in the trade spat were just posturing was echoed by Eli Lee, the chief investment strategist at the Bank of Singapore.

“Our assessment of forward scenarios at this juncture leans towards sabre-rattling or a moderate intensification of US-China tensions, instead of a sharp re-escalation of the US-China conflict,” said Lee.

He added that the overall risk environment remained “constructive” in the long term, given that rates cuts are to come. But he cautioned that portfolios should be “sufficiently diversified and robust” to withstand heightened volatility and a possible short-term correction “if US-China uncertainties further intensify”.

UOB’s Ho Woei Chen concurred that the reignited tit-for-tat was likely for leverage in the upcoming negotations. However, she cautioned that “wide differences and significant issues” need to be addressed before a trade deal can be achieved and the ongoing de-coupling is likely to “accelerate” until then.

Ho added that the uncertainties implied that there is still room for more front-loading of exports to avoid disruption to the supply chains ahead of the holidays, in line with OECD forecasts, with existing front-loaded inventory potentially hiding the impact on global trade until later.

DNB Carnegie senior economist Kelly Chen also pointed out that China’s dominance in rare earth elements means it holds “escalation dominance” for the next three to five years. This will likely force the US towards further “tactical concessions” despite the Trump administration’s hawkish rhetoric, she said.

Chen added that dominance has been a US “concern” since the early 2010s and rare earth elements became a “key negotiating lever” in the US-China relationship in April this year.

“Despite longstanding efforts, US dependence on China persists. Even with ample capital and Ebitda guarantees, lead times stretch over years and are likely insufficient to ensure domestic US supply until 2028,” said Chen.