Tokyo — Asian shares won some respite on Tuesday after Washington temporarily eased trade restrictions imposed last week on China’s Huawei, although fears of a further escalation in tensions kept investors on edge.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.35% but stayed not far from a four-month low touched on Friday.
It has fallen almost 8% from a nine-month peak hit just over a month ago. Japan’s Nikkei fell 0.4%.
The blue-chip CSI300 index rose 1.0%, a day after it fell to a three-month intraday low as Washington allowed Huawei Technologies to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets until Aug. 19.
Still, an increasingly acrimonious atmosphere between the world’s two biggest economies has led investors to abandon any hopes of an early resolution, a sea change from just a few weeks ago when a deal was considered to be within reach.
“With the news around the US and Huawei taking a turn for the worse, it seems that the trade war is increasingly showing signs of becoming a tech war,” said Seema Shah, senior global investment Strategist at Principal Global Investors in London.
“The further this trend develops, the bigger the collateral damage will be — particularly in Asia and the US, but the ripple effect will be significant across the globe.”
In New York, the S&P 500 lost 0.67% while the Nasdaq Composite dropped 1.46%. The Philadelphia Semiconductor Index fell 4.02% to two-month lows.
Huawei suppliers took a hit, with Qualcomm falling 6.0% and Micron Technology 4.0%.
“The determination of the US administration to paralyse China’s aspirations to become a technology superpower is clear when you consider that its actions against Huawei are not only damaging to China’s technology sector, but also the US tech sector,” Shah said.
Some US companies, such as Alphabet’s Google and Apple Face ID parts supplier Lumentum, have already started to limit services to Huawei.
Following Washington’s Huawei ban, Beijing could take retaliatory measures against US companies, further escalating tensions, said Norihiro Fujito, chief investment analyst at Mitsubishi UFJ Morgan Stanley Securities.
Corporate earnings guidance provided to investors so far does not take into account the impact of the Huawei ban, said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.
“The sales of semi-conductors will be curtailed at least in the short term and companies will likely need to revise down their earnings,” he said.
Markets showed scant reaction to a speech by Federal Reserve chair Jerome Powell, who dismissed comparisons between the rise of business debt to record levels in recent years and the conditions in US mortgage markets that preceded the 2007-to-2009 economic crisis.
In the foreign exchange market, major currencies were on the sidelines for now.
The euro was under pressure ahead of the European election this weekend but was little moved at $1.1165, off Monday’s low of $1.1150, its lowest level since May 3.