Rising tensions in Taiwan strait sparks wide futures sell-off in China

Escalating tensions between China and the US on the matter of Nancy Pelosi’s pending visit to Taiwan continued to spill over to the global financial markets.

Following a 4% fall in the crude oil market on Monday, traders and investors in China are gradually leaning towards a risk-off attitude with agricultural futures trading lower across the board on Tuesday.

From soymeal to palm oil, futures listed in China slumped 2-6% by market close. The most liquid palm oil futures on Dalian Commodity Exchange fell 6% to 8,120 yuan/ton ($1,201/ton) as traders cut their exposures.

Data from the exchange showed that investors in China have been dumping their positions since Monday.

This came shortly after the US House Speaker Nancy Pelosi started her Asia trip that includes stops such as Japan, Singapore, and Malaysia.

Pelosi’s potential visit to Taiwan – though not confirmed by the US government – has triggered a fierce response from the Chinese government which warned that the visit to the island could seriously undermine US-China relations and could even provoke military retaliation from the Chinese side.

Apart from the agricultural market in China, crude oil futures listed in Shanghai softened 2-3% across the board, and fuel oil futures sank 3-5%. Metals ranging from copper to aluminum dropped 1-2% in value.

In contrast, prices for safer assets such as gold and silver gained marginally with futures in China up about 1% on the day.

Domestic No.1 soybean futures on the DCE spiked nearly 10% since last week amid slow cargo buying and the potential disruption to seaboure soybean trades into China if tensions continue to escalate.