The arrest of a top Chinese tech executive at the request of the United States has sent shock waves through stock markets.
The main index in Hong Kong fell about 2.5% and Tokyo stocks closed down 1.9% on Thursday after Canada said Huawei’s chief financial officer, Meng Wanzhou, had been arrested in Vancouver and is being sought for extradition by the US government.
The arrest of Meng, the daughter of Huawei’s founder, sparked fears of a new escalation of tensions between the United States and China, which reached a truce in their trade war less than a week ago. Uncertainty about whether the two sides can reach a lasting deal has fueled volatile trading in global markets this week.
Tech stocks were among those bearing the brunt of the selling on Thursday.
Huawei isn’t listed on a stock exchange. But ZTE (ZTCOF), a Chinese tech firm that was temporarily crippled by a US export ban earlier this year, slumped nearly 9%. Huawei suppliers AAC Technologies (AACAY) and Sunny Optical (SNPTF) both plunged around 6%.
Stephen Innes, head of Asia-Pacific trading at investment firm Oanda, linked the losses directly to Meng’s arrest. The news has prompted investors to dump riskier assets, he wrote in a note to clients.
The Wall Street Journal reported last month that US officials had briefed counterparts in countries including Germany, Japan and Italy on potential security risks from Huawei equipment. That report prompted a major sell-off in more than 100 Chinese stocks, according to Innes.
‘Huge implications’ for trade war
It’s still unclear how Meng’s case will play out, but it could undermine talks between the United States and China aimed at defusing their damaging trade war.
A Huawei spokesperson said Meng faces unspecified charges in the Eastern District of New York. The Wall Street Journal reported in April that the US Justice Department was investigating whether Huawei violated US sanctions on Iran.
Meng’s arrest has “potentially huge implications” for the trade war and signals the US government is willing to get tough on Chinese companies that do business with Iran, according to Michael Every, head of Asia-Pacific research at investment bank Rabobank.
“It’s as strong a message to China’s elites as a horse’s head in your bed,” he wrote in a note to clients, referencing a famous scene from mafia movie “The Godfather.”