Asian Markets Update

Asian stocks fell sharply Friday, weighed down by greater fears of an escalation of trade protectionism after U.S. President Donald Trump announced steel and aluminum tariffs.

Trump’s move, aimed at protecting U.S. steelmakers, prompted investors to scale back their equity holdings, according to Commerzbank analyst Hao Zhou.

Read: Here’s why the stock market took Trump’s tariff announcement so hard

“Markets received a sharp reminder of the initial negative reaction to the election of Mr. Trump,” said Michael McCarthy, chief market strategist at CMC Markets. “The tariffs were announced without any policy framework. An explanation may come, but the initial market interpretation of the move is rank populism.”

Some fear the move will stoke “a game of tit for tat” between the U.S. and its trade partners, particularly from top producer China, Nomura strategist Takashi Ito said.

Japan’s Nikkei Stock Average NIK, -2.50%   skidded 2.5%, hit by the double whammy of trade fears and yen gains. The Nikkei lost 3% in the previous two days.

Japanese steel stocks fell more than 3% during the session, “Japan exports quite a bit of steel,” Ito said. Although tariff details on various products aren’t yet clear, “I can’t say there won’t be any impact” on Japanese companies, he added.

How we got here: A history of U.S. steel wars before Trump

Concerns about trade and tariffs outweighed strong U.S. manufacturing data and put downward pressure on the U.S. dollar. That pushed the dollar JPYUSD, +0.775914%   down to ¥105.93 against the yen from ¥106.80 at the end of Tokyo stock trading on Thursday. And that added to pressure on Japanese stocks.

The yen was also bolstered after Bank of Japan Gov. Haruhiko Kuroda said the bank will likely start considering an exit from its aggressive monetary easing beginning as early as next year.

Hong Kong’s Hang Seng HSI, -1.48%  lost 1.5% and Singapore’s bench mark STI, -0.99%   fell 1%. South Korea’s Kospi SEU, -1.04%   played catch-up — declining 1% — after markets there were closed Thursday for a holiday.

Among major users of steel, in South Korea, car maker Hyundai Motor 005380, -3.41%   fell 3.4% and steelmaker Posco fell 3.6%. In Hong Kong, Maanshan Iron & Steel 0323, -4.76%   and Angang Steel 0347, -2.35%  hit three-week lows after the U.S. decision, and closed down by 4.8% and 2.4%, respectively.

Markets in China, a country specifically targeted by the tariffs, soon bounced back from initial sharp declines. Stocks in Shanghai SHCOMP, -0.59%  , where most of China’s heavy industrials are listed, closed just 0.6% lower.

One reason for this is that Canada, not China, is the biggest steel exporter to the U.S. With U.S. companies’ cost of production likely to increase as a result of the tariffs, they may question whether to keep production in the U.S. If they don’t, a likely destination would be China, said Iris Pang, greater China economist at ING.

“So, is it really bad for China?” said Ms. Pang. “Overall, it may not be.”

Already, the government of Ontario, Canada’s biggest province and home to the bulk of the country’s steel production, urged Prime Minister Justin Trudeau to “aggressively explore all options” in the event the Trump administration pushes ahead with the broad tariffs.

Australia’s S&P/ASX 200 XJO, -0.74%  closed 0.7% lower. Among companies directly affected by the threatened U.S. tariffs, Blue Scope Steel BSL, +0.80%   rose 1.2% as it joined a narrowly focused rally among U.S. steel stocks thanks to its own operations there.

Haven stocks traded higher, with Australian gold miners Resolute Mining RSG, +0.90%   and New crest Mining NCM, +1.03%   up 0.9% and 1%, respectively.

Indian markets were closed Friday for a holiday.

Source: marketwatch.com