Global markets falls as US-China trade war fears mount

Technology shares led a US equity-market sell-off on Monday amid signs the Trump administration was preparing to escalate its trade war with Beijing by restricting Chinese investment in US companies.

The prospect of another round of anti-China measures, which could be announced by the White House as early as this week, sent global bourses lower during the Asian and European trading day, and pushed major indices down more than 1 per cent in the New York session.

The Nasdaq Composite suffered the worst losses among major indices as it fell more than 2 per cent, while the Dow Jones was down over 1 per cent. Shares of semiconductor maker Micron Technology, which earned more than half its revenue from China last year, was among those with the steepest declines.

“Tech, which had been held up as defensive, has lost a little bit of its defensiveness, since a disproportionate amount of tech revenues are generated from overseas markets,” said Mark Luschini, chief investment strategist for Janney Montgomery Scott.

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“There are concerns this trade spat might metastasise into something more sinister, by affecting global growth and business community sentiment.”

Multinationals

Shares in US multinational companies, including Boeing, Caterpillar and 3M, were also under pressure in the wake of the Trump administration’s plans to restrict Chinese investment in US companies and start-ups in sectors from aerospace to robotics.

Steven Mnuchin, the US Treasury secretary, said on Monday that the new “investment restrictions” would not be China-specific, but would be a broader attempt to limit foreign investment in sensitive US technologies.

“Statement will be out [that is] not specific to China, but to all countries that are trying to steal our technology,” Mr Mnuchin said..

The markets were also unnerved by signs US companies were making investment decisions based on new trade restrictions. Harley-Davidson said on Monday it would shift production of EU-bound motorcycles away from its US manufacturing sites as a result of Brussels’ decision to retaliate against Washington’s tariffs on imported steel and aluminium.

“We are in the middle of a trade squabble that is getting much worse, and market fears that it could threaten global growth are given credence by the size of the list of countries involved,” said Koon Chow, strategist at UBP.

“The US, China, the EU, Mexico and Canada are significant. The dispute comes at a time when China’s growth was already showing signs of slowing, adding to the danger.’’

While it is not yet clear how much import prices will be affected by shifts in the US’s approach to trade policy, a 10 per cent increase could hurt S&P 500 earnings per share by 3 to 4 per cent, according to Bank of America Merrill Lynch.

Under pressure

Shares were broadly lower across Europe, too, as export-focused companies came under pressure. The pan-European Stoxx 600 closed down 2 per cent.

British shares suffered their worst trading day since February . The FTSE 100 closed down 2.2 per cent, with financials, energy and material stocks weighing on the British blue chip index. “It does seem to us that the time has probably come whereby all things very exposed to global trade flows will begin to underperform perhaps quite sharply,” wrote Neil Campling of Mirabaud Securities.

Building materials

Dublin’s Iesq fell 1.5 per cent, dragged lower by CRH, which has a big exposure to the US market. Shares in the building materials firm fell 3.2 per cent to €30.10.

As investors dialled back their risk exposure, some believe the current trade tension will remain contained.

Seth Carpenter, economist at UBS, said: “We maintain our view that the US will avoid a full-scale trade war with China; the current developments reflect the contentious relationship, but full escalation is unlikely.”

– Copyright The Financial Times Limited 201