Nancy Pelosi's visit to Taiwan has been met with anger in China, fuelling concerns about already-strained ties with the United States

Hong Kong (AFP) - Asian markets mostly rose Wednesday after the previous day’s reverse, though traders remained on edge after House Speaker Nancy Pelosi’s visit to Taiwan, which has further strained China-US ties and raised concerns about the long-term impact on the global outlook.

The highest profile trip to the island in 25 years by a US politician was met with condemnation from Beijing, which warned of serious economic and military consequences.

Taiwan said more than 20 Chinese military aircraft had flown into the island’s air defence identification zone – an area wider than its territorial airspace that overlaps with part of China’s air defence zone. The People’s Liberation Army was also due to conduct a series of drills, while Foreign Minister Wang Yi vowed to “punish” those who offended the country.

Beijing said it would suspend imports of some citrus fruits and fish from Taiwan over alleged “repeated” detection of excessive pesticide residue and positive coronavirus tests on packages, while exports of natural sand were also halted, with no details provided.

Taiwan President Tsai Ing-wen struck a defiant tone at her meeting with Pelosi, saying the island “will not back down. We will… continue to hold the line of defence for democracy”.

At the event, Pelosi said her delegation “came to Taiwan to make unequivocally clear we will not abandon our commitment to Taiwan”.

No one expected it would spark a conflict, but the crisis sent shivers through trading floors that were already on edge over a range of issues including the Ukraine war, surging inflation, rising interest rates and slowing economic growth.

However, Asia enjoyed a small recovery, though some markets pared morning gains.

Hong Kong, Taipei, Tokyo, Singapore, Seoul, Wellington, Jakarta and Manila all rose, though Shanghai, Mumbai, Sydney and Bangkok edged down.

London, Paris and Frankfurt all fell at the open.

The “short-term implication may be ‘sell the rumour, buy the news’ as the official response so far remains much more restrained versus what the market has feared,” Xiadong Bao, at Edmond de Rothschild Asset Management, said.

“But the mid/long-term implication can be more significant, which may be currently overlooked by the market. The official return of the US influence in Asia-Pacific will inevitably accelerate US-China decoupling.”

Analysts are also keen to find out what the White House’s response will be, particularly ahead of mid-term elections in November with anti-China rhetoric playing well with voters, but with President Joe Biden keen not to further harm economic ties.

SPI Asset Management’s Stephen Innes added that the US administration was probably not likely to cut Trump-era tariffs before then.

The broadly positive performance in Asia followed a drop on Wall Street, where the Taiwan crisis was compounded by a series of hawkish comments from Federal Reserve officials indicating more big interest rate hikes could still be in the pipeline.

Stocks rallied last week and Treasury yields dropped after boss Jerome Powell hinted the bank could begin slowing down, but the latest remarks suggest a hoped-for dovish pivot might not be coming just yet as inflation remains stubbornly high.

“This round of Fed speak suggests markets might be a little too optimistic into pricing in a Fed pivot and that rate cut calls for next year are too optimistic,” said OANDA’s Edward Moya.

The latest developments have raised concerns that the volatility on markets would likely continue for some time.

“It’s hard to see any meaningful upside in equities right now,” said Xi Qiao, of UBS Group. “The market is going to trade pretty mixed, stay choppy until we have a little bit more certainty,” she told Bloomberg News.

- Key figures at around 0810 GMT -

Tokyo - Nikkei 225: UP 0.5 percent at 27,741.90 (close)

Hong Kong - Hang Seng Index: UP 0.4 percent at 19,767.09 (close)

Shanghai - Composite: DOWN 0.7 percent at 3,163.67 (close)

Taipei - TAIEX: DOWN 0.2 percent at 14,777.02 (close)

London - FTSE 100: DOWN 0.3 percent at 7,386.52

Dollar/yen: UP at 133.19 yen from 133.10 yen Tuesday

Euro/dollar: UP at $1.0183 from $1.0168

Pound/dollar: UP at $1.2206 from $1.2163

Euro/pound: UP at 83.43 pence from 83.57 pence

West Texas Intermediate: DOWN 0.9 percent at $93.60 per barrel

Brent North Sea crude: DOWN 0.9 percent at $99.63 per barrel

New York - Dow: DOWN 1.2 percent at 32,396.17 (close)