President Donald Trump's unanticipated tweet Sunday suggesting higher tariffs could be levied on Chinese goods sent mainland stocks reeling Monday, even as other markets in the region proved relatively resilient.
At the close of the Asian trading day, the Shenzhen and Shanghai composite indexes were off 6.8% and 5.6% respectively, with Hong Kong falling 2.9%.
Elsewhere, the fallout was less drastic, with declines of 0.9% for Australia's All Ordinaries index; 1% for India's S&P BSE Sensex; 1% for Indonesia's JSX and 0.3% for Malaysia's KLCI. Markets in Japan and Korea were closed for holidays.
Monday's hefty retreat followed an extremely strong start this year for mainland stocks, with the Shenzhen market up by more than 40% at one point over the past month, and Shanghai up by more than 30%.
The relatively steep declines for Chinese stocks Monday reflected, in part, their relatively sharp gains since the start of the year, said Ben Luk, Hong Kong-based senior multiasset strategist with State Street Global Markets.
In addition, mixed views on the outlook for further fiscal and monetary stimulus from the Chinese government are weighing on sentiment among the retail investors who dominate mainland markets, he said.
Still, some stock market veterans said there are reasons to expect China's neighbors could garner some benefits should U.S.-Chinese trade ties remain rocky.
While not immune from global trade headwinds, the Southeast Asia region could enjoy medium to long-term benefits should China move to relocate more mainland-based manufacturing facilities to other countries in the region, said Sean Gardiner, equity strategist for Singapore-based Association of Southeast Asian Nations and head of ASEAN equity research with Morgan Stanley (MS).
U.S.-China trade tensions have waxed and waned over the past year. But for entrepreneurs on the mainland looking five or six years ahead, the latest salvo from the U.S. will likely reinforce the view that hedging their bets by putting some productive capacity elsewhere in the region makes sense, agreed Tai Hui, J.P. Morgan Asset Management (JPM)'s Hong Kong-based Asia-Pacific chief market strategist.
If bilateral trade relations continue to erode, Monday's pattern may hold — with China and North Asian trading partners such as Korea and Japan that supply the mainland with key components suffering more than the rest of the region, he predicted.