Asia markets were mostly down on Monday, with investors cautious ahead of Sino-US talks in Shanghai this week and amid more civil unrest in Hong Kong.
Two-day discussions begin on Tuesday with a Washington delegation led by White House Trade Representative Robert Lighthizer.
But analysts are pessimistic about a resolution to the year-long trade dispute between the world’s top two economies that has seen $360 billion in tariffs imposed on bilateral trade.
“Hoping for the best but preparing for the worst best describes my view,” said Vanguard Markets managing partner Stephen Innes. “We are not overly optimistic about a positive Shanghai surprise.”
Hong Kong was among the biggest downward movers on Tuesday with the Hang Seng falling more than two per cent after a fresh round of violent protests over the weekend, before paring losses to close one per cent lower.
Pro-democracy demonstrators in the financial hub fought a second consecutive day of running battles with police on Sunday evening in a well-heeled residential district, a day after clashes at a banned rally in a town near the border with mainland China.
Real estate shares were among the biggest losers from the political uncertainty, with commercial property developer Swire down three per cent and subway operator MTR down 3.4 per cent at the close.
The weekend protests were “factoring quite negatively into the overall risk equation”, Innes said, with traders concerned that Washington may speak in support of the demonstrators.
“If they do, it would not only throw this week’s trade discussion into disarray but could jeopardise bilateral trade negotiations going forward,” he added.
The city’s American Chamber of Commerce (AmCham) on Monday urged officials to address grievances fuelling the protests – which have carried on for nearly two months – and “restore confidence” in the city’s reputation as an international business and financial centre.
“A clear majority of our membership surveyed over the past week said the government needs to address the underlying causes of the protests and not simply to paper over the cracks of social instability with a short-term law-and-order fix,” said AmCham president Tara Joseph.
Seoul fell 1.8 per cent amid an ongoing trade spat with Tokyo, which restricted export of materials key to South Korean tech firms earlier this month.
The Nikkei closed down 0.2 per cent ahead of a long slate of earnings figures this week, while Shanghai finished 0.2 per cent lower. The Cambodia Stock Exchange index shrank 0.13 per cent.
London was 0.8 per cent higher in morning trade.