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Mayhem on bourses: Global trade war fears battering all equity markets

Even markets such as India, despite low exposure to the US economy and their stock markets, has seen high turbulence

Samie Modak  |  Mumbai 

Mayhem on bourses: Global trade war fears battering all equity markets

Global equity are seeing heightened volatility due to the risk of a global Benchmark indices of almost all the countries have come off since February-end when US President first threatened to impose sanctions on imports of steel and aluminium.

Even such as India, despite low exposure to the US economy and their stock markets, has seen high turbulence due to the risk-off sentiment among overseas investors created by the fears.

Analysts see the selling pressure persisting in the week ahead as the Dow Jones index of the US plunged 2.3 per cent and slipped into correction territory on Friday. The index had dropped as much as 3.1 per cent intra-day on Friday after the said it was weighing tariffs on additional $100 billion worth of Chinese imports. A Chinese commerce official promised to fight back with a “major response”.

China’s tit-for-tat approach to US tariff announcements have spooked investors and raised prospects of a full-blown Investors fear rising protectionism could weaken global growth, raise inflation and hurt corporate earnings.

Experts say are eyeing two key events this week. These include the renegotiations of the North American Free Trade Agreement (Nafta) and key speech by Chinese President on Tuesday. Amid the deteriorating relations between the US and China, the are likely to take cues on any references made by Xi to the trade dispute with the world’s largest economy.

Tensions between and have been on the boil after US last week released a list of 1,300 products from China to be targeted with higher tariffs to curb misuse of US intellectual property. China had responded by announcing its plan to impose steep tariffs on $50 billion of US imports such as soybeans, airplanes and cars. The latest turbulence in the market was caused by US decision to up the ante against China with the $100-billion tariff threat.

Mayhem on bourses: Global trade war fears battering all equity markets

“Trump is proposing another $100 billion of Chinese imports to be subject to tariff hike. Our base case remains that a negotiated solution will be reached, but the extra $100 billion raises the risks if negotiations fail,” said Shane Oliver, head of investment strategy, AMP Capital.

A 10 per cent rise in trade costs could lower global GDP growth by 100 to 150 basis points, says in a report quoting estimates by the Organisation for Economic Co-operation and Development (OECD).

such as Brazil, India, Australia and South Africa, whose share of exports to the US is low, are also seeing their getting punished amid flaring up of tensions between the two largest economies.

“For India, we believe minimal impact of the moves thus far, but risks if these escalate and global growth gets hurt. Also, global risk-off could hurt Indian given that valuations are still at a premium,” said analysts Surendra Goyal and Vijit Jain in a report dated March 25.

The Indian market is currently down 7.6 per cent from the 2018 highs. Part of this correction is due to domestic factors, such as the banking fraud, political uncertainty and rising oil prices. However, the recent weakness is largely on account of global trade tensions.

The three largest exports from India to the US are jewellery, pharmaceuticals and textiles. Pharma and IT services are the two key sectors listed as high risks due to possible trade actions from the US. In an event of the escalation of the trade war, stocks in these two sectors, along with metals, could see the biggest correction, say analysts, who suggest domestic cyclicals and consumer stocks could be better plays at this juncture.

While trade will dominate the this week, investors will be hoping the March quarter result announcement will give them some reason to cheer.

First Published: Sun, April 08 2018. 22:44 IST
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