Nancy Pelosi’s plan to visit Taiwan sends stocks lower

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

Stock exchanges: Hong Kong Hang Seng Index (HSI) fell 2.4% and mainland China Shanghai Composite Index (Schcombe) It ended down 2.3%.
Germany Dax (Dax) and France CAC 40 (CAC 40) decreased 0.3% and 0.4%, respectively, while FTSE 100 (UKX) In London it was flat.

All three major US stock indices opened in red.

The Taiwan dollar was down 0.1% against the US dollar. Meanwhile, the Japanese yen, the traditional safe-haven currency, gained 0.6% against the dollar.

Concerns about escalating tensions in the Taiwan Strait are causing turmoil in the 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, who are concerned about China’s response to such a high-profile visit.

The stop – the first for a US House speaker in 25 years – is not on Pelosi’s public itinerary and comes at a time when US-China relations are already at an all-time low.

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

“Pelosi’s visit to Taiwan taints sentiment today. Amid escalating tensions in the Taiwan Strait and deepening concerns about the global economic slowdown, investors are turning to US bonds,” Stephen Innes, managing partner at SPI Asset Management, said Tuesday.

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“No party wants a real war, but the risk of a mishap or even an aggressive escalation of the war game is real, which could always lead to a tactical error,” he said.

Pelosi predicted that a visit to Taiwan would risk creating further instability between the United States and China

Meanwhile, ING analysts have speculated that China may send warplanes near or even over Taiwan “before, during, and after” Pelosi’s possible visit.

“The United States appears to have underestimated or misunderstood President Xi’s position on Taiwan. Xi’s determination to unify Taiwan with mainland China is very resolute,” analysts said in a research note on Tuesday.

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

Eric Cheung, Kylie Atwood, Alex Rogers, and Kevin Liptak of CNN contributed to this report.

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