US and European shares followed Asian indexes lower as investors weighed the market implications of the trip.
Stocks: Hong Kong’s Hang Seng Index (HSI) fell 2.4% and mainland China’s Shanghai Composite Index (SHCOMP) ended down 2.3%. Germany’s DAX (DAX) and France’s CAC 40 (CAC40) fell 0.3% and 0.4% respectively, while London’s FTSE 100 (UKX) was flat.
All three major US stock indexes opened in the red.
The Taiwan dollar weakened 0.1% against the US dollar. Meanwhile, the Japanese yen, a traditional safe-haven currency, jumped 0.6% against the greenback.
Concerns about escalating tensions in the Taiwan Strait are roiling 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 worried about China’s response to such a high-profile visit.
The suspension – the first for a US House speaker in 25 years – is not in Pelosi’s public agenda and comes at a time when US-China relations are already at a low point.
During a regular foreign ministry briefing on Monday, China warned of the “reckless political impact” of Pelosi’s planned visit to the self-governing island, which China claims is part of its territory. Zhao Lijian, a foreign ministry spokesman, said the country’s military “will not sit idly by” if Beijing feels its “sovereignty and territorial integrity” are under threat.
“Pelosi’s visit to Taiwan tarnishes sentiment today. And amid escalating tensions in the Taiwan Strait and deepening worries about a global economic slowdown, investors are diving headlong into US bonds,” Stephen Innes, managing partner at SPI Asset Management, said on Tuesday.
“No country wants a real war, but the risk of an accident or even an escalation of aggressive war games is real, which can always lead to a tactical error,” he said.
Meanwhile, ING analysts expected that China could send warplanes near or even over Taiwan “before, during and after” a possible visit by Pelosi.
“The US seems to have underestimated or misread President Xi’s position on Taiwan. Xi’s determination to unify Taiwan with mainland China is extremely firm,” the analysts said in a research note on Tuesday.
“We should see weakness in the Chinese yuan and Taiwan dollar in the coming days,” they added.
CNN’s Eric Chung, Kylie Atwood, Alex Rogers and Kevin Liptak contributed to this report.
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