Nancy Pelosi’s plan to visit Taiwan sends stocks tumbling

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

Scholarships: Hong Kong Hang Seng Index (HSI) decreased by 2.4% and that of mainland China Shanghai Composite Index (SHCOMP) ended 2.3% lower.
Germany’s DAX (DAX) and that of France CAC 40 (CAC40) decreased by 0.3% and 0.4% respectively, while the FTSE 100 (UKX) in London was flat.

All three major US stock indices opened in the red.

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

Concerns about rising tensions in the Taiwan Strait are churning markets.

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

Pelosi is expected to visit Taiwan, Taiwanese and US officials, say:

The stop — the first for a US House speaker in 25 years — is off Pelosi’s public route and comes at a time when US-China relations are already at an all-time low.

During a regular foreign ministry briefing Monday, China warned of the “major political impact” of Pelosi’s planned visit to the self-governing 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 its “sovereignty and territorial integrity” is under threat.

“Pelosi’s visit to Taiwan is hurting sentiment today. And amid mounting tensions in the Taiwan Strait and mounting concerns about a global economic slowdown, investors are diving headlong into US bonds,” said Stephen Innes, managing partner at SPI Asset Management, Tuesday.

“No side wants a real war, but the risk of an accident or even an aggressive escalation of war games is real, which can always lead to a tactical error,” he said.

Pelosi's expected visit to Taiwan threatens to increase US-China instability

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

“It appears that the US has underestimated or misinterpreted President Xi’s stance on Taiwan. Xi’s determination to unite Taiwan with mainland China is extremely determined,” the analysts said in a research note on Tuesday.

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

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

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