Why the Arrest of Huawei’s CFO Has Helped Send Stock Markets Into a Tailspin

Asian indices plummeted today—Nikkei 225 down 1.9%, Hang Seng down 2.5%, Shanghai Composite down 1.7%—and Europe’s Stoxx 600 is down 1.9% at the time of writing. The main catalyst for the continuation of this week’s selloff was the arrest in Canada of Sabrina Meng Wanzhou, the chief financial officer of Huawei and the daughter of company founder Ren Zhengfei.

Meng faces extradition to the U.S., where investigators are probing Huawei’s alleged non-compliance with sanctions on Iran. Is the timing of the arrest deliberate? That’s an open question at this point—but either way, it could not be more tumultuous in effect. China, which has spent the week thus far making conciliatory gestures to the U.S. in an attempt to bring the trade war to an end, is furious and is demanding Meng’s release.

“China should be fully prepared for an escalation in the trade war with the U.S., as the U.S. will not ease its stance on China, and the recent arrest of the senior executive of Huawei is a vivid example,” thundered the state-run Global Times in a tweet bearing an image of flag-emblazoned fists.

Meanwhile, the substantially more independent South China Morning Post reported today that Meng and her father recently told Huawei employees that strict compliance with regulations was sometimes not financially feasible and could be avoided. Not a good look at this time.

The Meng arrest wasn’t the only thing roiling the Asian markets today—Apple suppliers’ shares have tumbled again after camera-lens supplier Largan Precision revealed a 28% fall in year-on-year monthly revenues.

The end of iPhone sales growth is a major factor here—Apple was this year displaced as the world’s second-biggest smartphone producer by, you guessed it, Huawei—but again the trade war is lurking in the periphery. Key contractors whose stock fell, Pegatron and Foxconn, were reported this week to have been planning factories outside China in order to mitigate the impact of tariffs.

Nobody will blame them for scrambling. At this point it’s fair to say most of the goodwill coming out of last weekend’s G20 meeting between Presidents Trump and Xi has evaporated. Hold onto your hats.