Global Markets Overview: Asia
By Chau Tonnu, Analyst at the York IFS Global Market Telegraph
China and Australia’s declining relationship has led to restrictions on imports, which may be detrimental to Australia. Whilst in India, the country officially entered into a recession.
China’s CSI 300 closed up 2.2% on Tuesday after it was revealed that in November, China’s manufacturing sector accelerated at the fastest rate in over a decade [i]. In Japan, the Nikkei lost 0.8% despite retail sales rising 6.4% year-on-year in October. Whilst the Hang Seng fell 2.1% after it was reported that the Trump administration was to add the chipmaker SMIC and gas producer CNOOC to the blacklist [ii]. On Wednesday however, the Hong Kong index recovered 0.4% after the UK became the first country to approve the Pfizer-Biotech vaccine. Fosun Pharmaceutical, which has exclusive rights for the Pfizer vaccine in China, rallied 3.7% [iii].
The deterioration of Chinese-Australian relations has resulted in a 25% drop in coking coal prices. The Australian government called for an inquiry into the source of the pandemic, leading to Beijing placing an unofficial ban on imports. From Saturday, it was announced that Australia will have wine tariffs between 107-212%, which will likely hit the A$1.2bn worth annual trade [iv]. Australia’s trade minister has deemed the ban incompatible with the China-Australia Free Trade Agreement and warned that Canberra may seek redress at the WTO. With bilateral trade worth $252bn in 2019 and China being Australia’s largest trading partner, it is likely that Canberra will be heavily affected by the worsening relations. Citi forecasted a 10% fall in total Australian exports to China [v]. If relations carry on deteriorating where restrictions would be extended to Australian iron ore, there could be a 50% reduction in exports, which would lead to a 3.8% decrease in nominal GDP.
India’s GDP fell 7.5% year-on-year in the quarter ending in September, which has led to a recession. With a population of more than 1.4bn people, the country has struggled with the outbreak of the coronavirus pandemic, which caused more than 140,000 deaths and 9.3m cases, the 2nd highest in the world after the US [vi]. In March, when the lockdown was first imposed, more than 100m people lost their jobs, with the poorest being disproportionately affected. ILO estimates that 400m informal workers are currently at risk of falling into deeper poverty [vii]. Despite this, there is hope of recovery: in the previous quarter, it was revealed that the agricultural and manufacturing sector grew by 3.4% and 0.6%, respectively.
This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 13.1 in early December 2020.
Reference list: [i] https://uk.reuters.com/article/us-global-markets/asian-shares-open-higher-following-stellar-month-of-gains-idUSKBN28A39D [ii] https://www.baystreet.ca/foreignmarketwrap/3554/Asia-Pacific-Mostly-Down-Monday [iii] https://www.scmp.com/business/markets/article/3112335/hong-kong-markets-eke-out-early-gains-fresh-services-sector-data [iv] https://www.ft.com/content/2a153cc7-8b4b-45b7-8580-a23083673f9a [v] https://www.ft.com/content/2a153cc7-8b4b-45b7-8580-a23083673f9a [vi] https://www.ft.com/content/33659ed3-cf15-4e93-9128-727d24759225 [vii] https://www.ft.com/content/5426436b-193b-4e27-a86e-7f9154654a11
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