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Asian Equities Mixed; U.S. Tariffs Revive Trade War Fears

Asian equities were mixed in afternoon trade on Friday. – Asian equities were mixed in afternoon trade on Friday. The U.S. refused to exempt its allies from tariffs, reigniting fears of a global trade war. The uncertainty hampered market confidence and sent Greater China stocks down, while a weaker yen sent Nikkei higher and South Korea’s KOSPI was supported by firm export data.

Reports that the administration of U.S. President Donald Trump surprised partners and allies Thursday by refusing to extend a reprieve on tariffs on imported steel and aluminium took centre stage. This came only days after headlines on the Italian political turmoil affected the global markets.

The announcement means the EU, Canada and Mexico would be soon subject to tariffs. Meanwhile, Trump was threatening more tariffs on other imported products, including European cars.

The new tariffs build on the ones on about US$50 billion worth of Chinese imports that the U.S. had announced earlier in the week. Canada, Mexico, Europe and China all said they would retaliate quickly and in kind.

Clouded by the uncertain global trade outlook, stock markets in China and Hong Kong underperformed.

The Shanghai Composite and Shenzhen Component traded 0.55% and 0.98% lower by 1:02PM ET (04:02 GMT). Hong Kong's Hang Seng Index dropped 0.14%.

Reports that Chinese stocks are included in the MSCI emerging markets index also received attention on Friday. There had been expectations that the inclusion would lead managers of index-tracking funds to rebalance their portfolios and shore up foreign investment by about US$10 billion. A group of 230 A-shares – large-cap stocks traded in mainland markets – were added to the MSCI index with a 2.5% partial inclusion factor. More stocks will be added on Sept. 3.

In addition, China's Caixin manufacturing PMI for May came in at 51.1, slightly below the expected 51.3.

Meanwhile, the U.S. dollar remained rather firm and gained 0.26% against the yen at 109.07. A weaker yen is often cited as tailwind for Japanese stocks. Japan's Nikkei 225 added 0.04%.

On a side note, the Bank of Japan cut purchases of of Japanese Government Bond maturing in 5-10 years to 430 billion yen from the previous 450 billion yen.

Japan's manufacturing PMI for May came in at 52.8, beating the forecast 52.5. For PMI, a reading above 50 signals an improvement, while one below 50 points means a contraction in manufacturing activity.

Supported by firm export data, South Korea's KOSPI advanced 0.65%. The country’s exports rose 13.5% in May from a year earlier compared to the forecast 12.7%, while imports jumped 12.6%, leaving a trade surplus of $6.7 billion.

Down under, Australia's S&P/ASX 200 eased 0.41% in afternoon trade.

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