Chinese spy balloon impact on markets: equities fall, gold rises; will market sentiment burst over concerns? | The Financial Express

Chinese spy balloon impact on markets: equities fall, gold rises; will market sentiment burst over concerns?

Global stocks were largely down after concerns increased after US shot down a suspected Chinese spy balloon, said experts.

chinese spy balloon
Gold gained as equities fell on Chinese spy balloon-related tensions.

A suspected Chinese spy balloon found flying over American land has caused the discord between the US and China to grow further. Analysts and experts believe that the mounting geo-political tension between the territorial giants could cause dismay for investors and markets across the globe. The balloon carried surveillance equipment, according to American officials familiar with the matter. While Beijing claimed ownership of the balloon, the Chinese government maintained that the balloon was merely a weather balloon that had flown off-course, expressing regret over the matter. A US fighter jet shot the balloon down on President Biden’s orders, causing the conflict to mount further.

Effect on asset classes

Deepak Jasani, Head of Retail Research, HDFC Securities, said that apart from the strong US unemployment data, a critical factor behind the fall in global stocks is the spy balloon. “Global stocks were largely down after… geopolitical concerns increased after the United States shot down a suspected Chinese spy balloon that had floated across the country for days,” he said. However, Akhilesh Jat, Category Manager – Equity Manager, CapitalVia said the markets aren’t factoring in the worst possible scenario at this time.

Historically, while global equity markets tend to tank as a result of geo-political discord, investors tend to flock to assets such as gold. “Weakness in major global markets and rising tension between US and China after the US shot down a Chinese spy balloon over the Atlantic has increased the safe haven appeal of the yellow metal,” said an ICICIdirect research report.

US, China markets fall

As market sentiments in China soured, Chinese indices and stocks fell sharply as concerns regarding American sanctions escalated. Hong Kong’s Hang Seng index declined 1.3%, while the country’s benchmark index, CSI 300 Index, slid 1.3% and the Shanghai Composite gave up 0.8%. The listed retail heavyweight, Alibaba, fell 0.9% on the NYSE. Wall Street was also faced with dampening sentiments on Monday. The country’s primary indices extended losses as the Nasdaq Composite tanked 1% overnight. Dow Jones and S&P 500 also closed lower.

As China reopened, the end of restrictions should progressively assist in removing supply chain obstructions. The operations and investment of multinational corporations are boosted by facilitated cross-border travel, said Akhilesh Jat, CapitalVia. However, if the Chinese government retaliates, it could lead to a potential down-fall in the global equity market.

However, he added that there will be no long term impact of this current issue. “China is fighting against COVID and the US is fighting against inflation. So this can only have a short-term effect because no nation can currently afford significant political unrest. Every nation is attempting to grow their economy, thus in my opinion both will try to avoid any significant conflicts,” Akhilesh Jat, CapitalVia said.

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First published on: 07-02-2023 at 14:09 IST