Asian markets decline amid US tariff fears

Asian markets experienced a downturn on Monday following the US imposition of tariffs on imports from Canada, Mexico, and China, intensifying fears of a new global trade war.

“Equity markets and currencies are selling off on fears of growth and risk aversion, as well as expectations of tighter US Fed policy,” Alex Holmes, regional director for Asia at the Economist Intelligence Unit in Singapore told Nikkei Asia.

Jason Lui, head of APAC equity and derivatives strategy at BNP Paribas in Hong Kong, stated that investors would reassess their expectations regarding US President Donald Trump’s actions compared to his statements.

Lui noted, “Investors had previously thought Trump would use tariffs as a negotiating tool, but it seems he is much more serious than the market expected.”

On Saturday, Trump signed decrees imposing tariffs of 10 percent on goods from China and 25 percent on those from Mexico and Canada, effective from Tuesday. The Chinese government announced it would sue the US at the World Trade Organisation (WTO), while leaders of Mexico and Canada stated they would respond with tariffs.

The tariffs are anticipated to raise prices in the US and likely cause the Federal Reserve to keep interest rates unchanged. Consequently, Asian currencies are expected to lose value against the dollar. Although a weaker currency often benefits Asian stocks, the prospect of a new trade war is concerning for the region’s export-dependent economies.

The MSCI AC Asia Pacific Index, tracking Asian stocks including Japan, fell approximately 2.5 percent.

On the first trading day after the Lunar New Year holiday, Taiwan’s benchmark index, TAIEX, dropped 3.5 percent, influenced by the Chinese artificial intelligence chatbot DeepSeek. South Korea’s benchmark index, KOSPI, declined by 2.5 percent.

Quanta Computer, a significant supplier for Tesla and Nvidia, saw a nearly 10 percent loss. Delta Electronics, the largest power supply manufacturer, fell by nearly 9 percent. Foxconn and TSMC, key suppliers for Nvidia and Apple, decreased by 8 percent and 6 percent, respectively. SK Hynix experienced a 4 percent drop.

Japan’s leading Nikkei Stock Average and the broader Tokyo Stock Price Index both fell by around 2.5 percent. Shares of car manufacturers declined considerably, with Mazda Motor and Honda Motor down more than 7 percent, and Toyota and Nissan Motor down more than 5 percent.

Hong Kong’s Hang Seng Index and Hang Seng Technology Index both fell at the opening, but closed the day flat. Bilibili, an online video streaming site listed in the region, closed down 5.4 percent.

The FTSE China A50 Index Futures, a gauge of foreign investor sentiment in the onshore market, fell 2.2 percent at the open and continued to decline. China’s A-shares market is closed for a holiday, and trading will resume on Wednesday.

In the US, S&P 500 futures fell 1.8 percent, and Nasdaq futures fell more than 2 percent.

The strengthening dollar weakened Asian currencies.

“Two-year Treasury bonds are rallying, and therefore, the dollar is king while many other currencies are selling,” Shoki Omori, global chief desk strategist at Mizuho Securities told Nikkei Asia.

The yield on 2-year Treasuries increased to 4.263 percent, raising investors’ expectations that US policymakers would keep interest rates unchanged.

The Japanese yen strengthened to the mid-54 level before falling 0.56 percent to 155.52 against the dollar as of 16:31 Japan time.

The Indian rupee reached a record low of 87.23, and investors anticipate the country to cut interest rates on Friday, potentially further weakening the currency.

The offshore Chinese yuan weakened to 7.3680 before recovering to trade at 7.3416 against the dollar as of 17:37 Japan time. The onshore yuan market is closed for a holiday.

Goldman Sachs noted in a publication on Sunday that China’s response to US tariffs had been “relatively measured so far.” Strategists expressed more concern about a potential ‘hawkish direction’ as policy coordination would become easier after the holidays.

Holmes from the Economist Intelligence Unit noted that the persistence of US tariffs and communications from US policymakers would be closely monitored.

Holmes added, “Asian central banks would be happy to let their currencies fall a little bit to offset the impact of the tariffs, because domestic conditions are favorable due to low inflation.”