Nancy Pelosi’s plan to visit Taiwan sends stocks tumbling

US and European shares followed Asian indices lower as investors weighed the market implications of the trip.

Stock Markets: Hong Kong Hang Seng Index (HSI) Mainland China fell 2.4% Shanghai Composite Index (SHCOMP) ended up down 2.3%.
of Germany DAX (DAX) and of France CAC 40 (CAC40) Down 0.3% and 0.4% respectively FTSE 100 (UKX) Had a flat in London.

All three major US stock indexes opened in the red.

The Taiwan dollar weakened 0.1% against the US dollar. Meanwhile, the traditional safe-haven currency, the Japanese yen, rose 0.6% against the greenback.

Concerns over rising tensions in the Taiwan Strait are roiling markets.

Pelosi is expected to visit Taiwan as part of her Asia tour, according to a senior Taiwanese government official and a US official, despite warnings from Biden administration officials that they are concerned about China’s response to such a high-profile visit.

The stop — the first for a US House speaker in 25 years — was not part of Pelosi’s public itinerary and comes at a time when US-China relations are already at a low ebb.

During a regular foreign ministry briefing on Monday, China warned against the “huge political impact” of Pelosi’s planned visit to the self-governing island, which China claims as part of its territory. Foreign Ministry spokesman Zhao Lijian said the country’s military “will not sit idly by” if Beijing feels its “sovereignty and territorial integrity” are being threatened.

“Pelosi’s visit to Taiwan is tainting sentiment today. And amid rising tensions in the Taiwan Strait and deepening concerns about a global economic slowdown, investors are piling on U.S. bonds,” Stephen Innes, managing partner at SPI Asset Management, said on Tuesday.

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“No party wants real war, but the risk of an accidental or aggressive war game escalation is real, which always leads to a tactical blunder,” he said.

Pelosi's expected visit to Taiwan risks creating more instability between the US and China

ING analysts, meanwhile, expected China to send fighter jets near or even over Taiwan “before, during and after” Pelosi’s potential visit.

“The US appears to have underestimated or misread President Xi’s position on Taiwan. Xi’s commitment to annexing Taiwan to mainland China is very firm,” analysts said in a research note on Tuesday.

“We should see weakness in the Chinese yuan and Taiwan dollar in the coming days,” they added.

CNN’s Eric Cheung, Kylie Atwood, Alex Rogers and Kevin Lipdock contributed to this report.

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