Pelosi’s heavily anticipated visit sent the stock market into its largest plunge in more than two months as investors reacted to escalated tensions between the United States and China, Reuters reported. The trip has inflamed relations between the two countries as China has made threats over the trip.
Taiwan is an island located about 80 miles off the coast of mainland China that has been governed independently since 1949. It has long been a point of contention between China and the United States, as China claims it as its own territory, but Taiwanese authorities say they are an independent nation. The U.S. has not recognized an independent Taiwan but has voiced support for the island in recent years amid concerns of a possible Chinese invasion.
Pelosi’s trip—the first time a speaker of the House has visited the island since 1997—has led to heightened concerns that some sort of military conflict could take place in or around Taiwan, fueling economic uncertainty among top investors both in China and abroad.
On Tuesday, hours after Pelosi arrived in Taipei, the concerns about an international flare-up led four major stock indexes to all experience drops of at least two percent, according to Reuters.
The blue-chip CSI300 index fell 2 percent, the Hang Seng index fell 2.4 percent, the Shanghai Composite Index lost 2.3 percent, and the China Enterprises Index lost 2.5 percent, Reuters reported.
Marko Papic, chief strategist at Clocktower Group, explained to Reuters why stocks dropped during Pelosi’s visit to the island.
“In the near-term, investors may consider hedging such risk with a tactical short position in Chinese equities and currency,” he said.
Pelosi’s visit also appeared to shake up the Taiwanese economy. The Taiwanese dollar dropped .2 percent on Sunday as reports continued to outline the possibility of her visit, coupled with a slowdown in manufacturing activity on the island, according to a report from Bloomberg.
Pelosi Trip, China Military Activity Spark Uncertainty
Pelosi’s plane safely landed in Taipei on Tuesday morning, but concerns among investors still mounted about the possibility of an incident occurring amid her visit as China ramps up military action off the coast of Taiwan.
China on Tuesday released a map of military exercises to begin in the days following Pelosi’s visit, starting August 4, around the island. Any military exercises could potentially lead to an accident, which could in turn see tensions between China and Taiwan escalate even further. People’s Liberation Army Eastern Theater Command spokesperson Senior Colonel Shi Yi said Tuesday the exercises are “targeted at the U.S.’ shocking recent major escalation on the Taiwan issue.”
The White House also warned about the possibility of tensions escalating due to Chinese military activity planned near the island during Pelosi’s trip.
“What that does is it does increase the risk of miscalculation, which could lead to unintended consequences, and that’s really the risk,” said National Security Council Strategic Communications Coordinator John Kirby on Monday.
Markets were also likely rattled by several threats made by Chinese officials in the weeks leading up to her visit. Starting in mid-July, China began pushing against the visit. Chinese Foreign Ministry Deputy Director Zhao Lijian said July 19 that her visit would “seriously violate the one-China principle” and “have a severe negative impact on the political foundation of China-U.S. relations.”
“The U.S. must not arrange for Speaker Pelosi to visit the Taiwan region and must stop official interactions with Taiwan, stop creating factors that could lead to tensions in the Taiwan Strait, and follow through on the U.S.’s commitment of not supporting ‘Taiwan independence.’ Should the U.S. side insist on doing otherwise, China will take strong and resolute measures to safeguard its sovereignty and territorial integrity. The U.S. must assume full responsibility for any ensuing consequences,” he said.