Larry Mayer/The Billings Gazette via AP
- Chinese stocks fell after the US military this weekend shot down a suspected Chinese spy balloon.
- China claimed the balloon was for research purposes. Stocks fell in Shanghai, Hong Kong, and New York.
- The "damage has been done on the geopolitical front," says BDSwiss.
Chinese stocks listed in both the US and China fell Monday after the US shot down a suspected Chinese spy balloon that had been flying over the United States, raising concerns about renewed tension between the world's largest economies.
In trading Monday, Hong Kong's Hang Seng slid 2% and the CSI 300 Index, the mainland's benchmark index, declined 1.3%. The Shanghai Composite lost 0.8%. In the US, NYSE-listed shares of Chinese retail heavyweight Alibaba gave up 0.9% during the session.
The high-altitude balloon was brought down Saturday off the South Carolina coast, reportedly by an F22 jet that fired at it a single air-to-air missile. The balloon drifted across the US for several days before it was destroyed.
"The US was salvaging the wreckage for investigation, but the damage has been done on the geopolitical front with tensions rising between the two nations. The US canceled [Secretary of State Anthony] Blinken's visit and continues to give the cold shoulder to China as China asks for calm and claims it was a weather observation craft," Brad Bechtel, global head of FX at Jefferies, said in a Monday note.
Secretary of State Anthony Blinken postponed a scheduled trip to Beijing following the balloon's emergence in the US last week. Chinese officials admitted the balloon was China's but said it was a civilian airship used for research rather than a surveillance tool.
In other trading action, Nasdaq-listed shares of e-commerce company JD.com fell 1.8%, search engine operator Baidu shed 0.9% and gaming and online technology maker NetEase slumped by 1.9%.
Among exchange-traded funds, KraneShares CSI China Internet ETF gave up 2.3% and iShares MSCI China ETF moved down 1.7%.
The US dollar was higher against China's yuan, rising 0.3% to buy 6.7949 yuan.
The "risks of increasing tensions between the US and China following the discovery of the suspected spy balloon could draw investors toward the safety of the US dollar. This trend could exacerbate if tensions flare up," Daniel Takieddine, CEO MENA at BDSwiss, wrote in a note.
"The US and China have already been at odds during the last few months while the US tried to limit China's access to cutting-edge chip technology," he said.
Meanwhile, China on Monday said it owned a second balloon that's been flying over Latin America and that it's being used for civilian flight tests.
"Blinken's trip was postponed, not canceled. The initial signals were that retaliatory action was not planned, but pressure is reportedly building for possibly, new controls on technology exports to China," wrote Marc Chandler, managing director at Bannockburn Global Forex, in a note.