Asian shares steady after steep losses; Saudi comments lift oil – Reuters

Asian shares steady after steep losses; Saudi comments lift oil – Reuters

SHANGHAI (Reuters) – Asian shares steadied on Monday as investors caught their breath following another week of escalating U.S.-China trade tensions, with sentiment turning brighter after the United States said it would lift tariffs in North America.

FILE PHOTO: A man looks at an electronic board showing the Nikkei stock index outside a brokerage in Tokyo, Japan, January 7, 2019. REUTERS/Kim Kyung-Hoon

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.6%, reflecting modest gains in markets across the region after the broad index finished at its lowest since Jan. 24 on Friday, down 3% for the week.

Australian shares underpinned the market’s firmer mood, jumping 1.7% after the center-right Liberal National Coalition pulled off a shock win in federal elections, beating the left-wing Labor Party.

Election results also look set to lift markets in India. India’s NSE Stock Futures listed in Singapore rose 2.4% and the rupee strengthened after exit polls showed Indian Prime Minister Narendra Modi is likely to return to power with an even bigger majority in parliament.

Shares in the trade-sensitive markets of South Korea and Taiwan also rose. The Taiwan SE Weighted Index added 0.3% and Seoul’s KOSPI rose 0.6%.

U.S. S&P 500 e-mini futures also turned higher, rising 0.3% following losses on Wall Street on Friday.

“We’ve had such a volatile few days in terms of pronouncements and interpretations of what’s going on with this potential trade war. And I think the news bites that we had over the weekend seem to indicate a softening of Trump’s approach toward tariffs internationally,” said Jim McCafferty, head of equity research, Asia ex-Japan at Nomura.

The U.S. announced on Friday that it would remove tariffs on Canadian steel and aluminum, prompting Canada’s foreign minister to vow the quick ratification of a new North American trade agreement.

“I think people might take the view that perhaps a similar strategy might be applied to Asia,” McCafferty said, referring to the lifting of tariffs.

The cautious optimism failed to lift Chinese blue chips, which fell 1%.

Japan’s Nikkei stock index added 0.3%, after data showed growth in the world’s third-biggest economy unexpectedly accelerated in the first quarter.

Modest gains on Monday came even as financial markets remained on edge over the intensifying Sino-U.S. trade war, with the Trump administration last week adding Huawei Technologies Co Ltd to a trade blacklist.

The repercussions of that move were evident as Alphabet Inc’s Google suspended business with Huawei that requires the transfer of hardware, software and technical services except those publicly available via open source licensing.

Google’s suspension of business with Huawei “signals that even though the trade talks are being characterized as being stalled, when we factor in China saying there is no point (in) U.S. negotiators coming to Beijing in current circumstances as they did Friday, then the chance of a G20 deal seem more remote,” Greg McKenna, strategist at McKenna Macro said in a note to clients.

Noting the festering trade war, continued uncertainty over Brexit and rising tensions between the United States and Iran, McKenna said investors are currently “headline trading.”

“(It’s) too soon to see the economic consequences of the battle escalating. And so belief can be suspended until that time,” he said.

OIL JUMPS

Rising tensions in the Middle East, which have supported oil prices, ratcheted up another notch on the weekend as U.S. President Donald Trump issued new threats, tweeting that a conflict with Iran would be the “official end” of that country.

But it was comments from Saudi Arabia’s energy minister that had the most immediate effect on crude prices on Monday.

Saudi Energy Minister Khalid al-Falih said that there was consensus among the members of the Organization of the Petroleum Exporting Countries to maintain production cuts to “gently” reduce inventories.

Both U.S. crude and Brent crude jumped more than 1.4% following the minister’s comments, with West Texas Intermediate fetching $63.66 a barrel and Brent crude at $73.27 per barrel.

In currency markets, China’s offshore yuan rebounded after touching its weakest against the dollar since November on Friday. It was last trading at 6.9351 per dollar.

In onshore trading on Friday, the yuan had weakened past the psychologically important 6.9 per dollar level to end at its softest in 19 weeks. However, sources told Reuters the country’s central bank is expected to use foreign exchange intervention and monetary policy tools to stop it weakening past the 7-per-dollar level in the near term.

The People’s Bank of China said on Sunday that it would maintain basic stability of the yuan exchange rate within a “reasonable and balanced range.”

The onshore yuan strengthened to 6.9081 per dollar on Monday.

The dollar added 0.12% against the yen to 110.20, while the euro was barely changed at $1.1155. The dollar index, which tracks the greenback against a basket of six major rivals, was up a hair’s breadth at 98.018.

The yield on benchmark 10-year Treasury notes rose to 2.4015% compared with a U.S. close of 2.393% on Friday, while the two-year yield touched 2.2146%, up from Friday’s U.S. close of 2.202%.

Gold trimmed earlier gains on the modest revival in risk appetite, easing to $1,276.91 per ounce.

Editing by Shri Navaratnam and Jacqueline Wong

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US-China trade war: Moving to Vietnam to avoid sanctions

US-China trade war: Moving to Vietnam to avoid sanctions

A worker in a steel processing plant in China

Image copyright
Getty Images

Image caption

China’s industries have been hit by US tariff hikes

Companies operating in China are facing stiff increases in tariffs on exports to the United States as the trade war between the two countries escalates.

So, there’s an incentive for manufacturers in China to move their production to countries not subject to these tariffs.

And one of these beneficiary countries has been Vietnam, China’s increasingly business-friendly southern neighbour.

So what can we say about changing Chinese investment into Vietnam?

The first thing to note is that foreign firms, including those from China, have long taken advantage of Vietnam’s cheaper labour and attractive business environment, well before the imposition of the first round of US sanctions last September.

Rising Chinese foreign direct investment into Vietnam

($bn)

“Vietnam has already been gaining as wages have been rising in China,” says Mary Lovely at the Peterson Institute for International Economics, a US-based think tank.

But there are also indications that investment has accelerated since the imposition of US sanctions on China last year.

In the first four months of 2019, Chinese investment into Vietnam has already reached about 65% of the total for 2018.

So there’s certainly been an upsurge in Chinese investment, but how much of this is to do with tariffs?

Vietnam’s success story

Vietnam’s economy has grown rapidly in the past decade.

Its manufacturing industry has done particularly well, with multinationals like IKEA, for instance, bolstering operations there.

Vietnam’s economic growth

And while the growth of industry is a long-term trend, experts say there’s growing evidence that an increasingly stringent US tariff regime on Chinese goods is driving further investment into Vietnam.

“Many companies were investing in production outside of China, particularly in South East Asia, before the current trade conflict”, according to corporate law firm, Baker & McKenzie, based in Hong Kong, but “the recent trade friction has simply accelerated this evolution.”

There are, however, clear signs that the pressures of rapid growth in Vietnam are taking their toll.

There were just over 14.5 million people in 2018 working in industry in Vietnam, according to the International Labour Organization.

That compares with more than 200 million in China.

Rising wages in Vietnam

Average monthly pay ($)

Labour costs in Vietnam are rising, and the pool of new labour to draw on is much smaller than for its giant neighbour.

The ability for Vietnam to continue to absorb foreign investment will also be constrained by rising land and factory costs.

According to JLL Vietnam, a firm that specializes in real estate, industrial rental prices rose by 11% in the second half of 2018 in southern Vietnam. This has been attributed to the shift of producers from China, partly because of tariffs.

Image copyright
Getty Images

Image caption

Ho Chi Minh City in southern Vietnam, the country’s main manufacturing region

Sanctions against Vietnam?

For firms moving all or part of their supply chains from China to Vietnam to avoid US sanctions, there is a risk that the US could take action against Vietnam as well.

Some multinationals are taking on a “China plus one” approach – firms keeping a foothold in China while also operating in a low-wage economy elsewhere in Asia.

The US administration is aware of the shift into production operations outside China as a way to avoid sanctions.

President Trump recently tweeted: “Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia. That’s why China wants to make a deal so badly!”

In the escalating trade war between the United States and China, the label “Made in Vietnam” may not in the future be enough to avoid US tariffs.

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