Hong Kong, China stocks tank as Beijing closes US consulate in Chengdu, the ‘last straw’ for spooked investors

Hong Kong and mainland stocks tanked after Beijing ordered the US to close its consulate in Chengdu, a retaliatory move that added to escalating US-China tensions and became what one analyst called the “last straw” for spooked investors.

On the mainland, where stocks have been soaring of late, the sell-off on Friday was fierce.

The CSI 300 of large caps in Shanghai and Shenzhen plummeted 4.4 per cent, the Shanghai Composite Index fell 3.9 per cent, and the Shenzhen Composite Index fell 5 per cent. In Shenzhen, with more than 2,000 stocks on the benchmark, only 177 stocks posted any gains at the close. All three benchmarks posted their second consecutive week of losses due to Friday’s collapse.

Hong Kong’s Hang Seng Index fell 2.2 per cent, or nearly 560 points. That left it with its second straight week of losses. It lost 1.5 per cent this week — with a 2.3 per cent slide on Wednesday on news that the US was shutting down China’s consulate in Houston, Texas — on top of 2.5 per cent the previous week.

The market sell-offs could continue in Hong Kong and China if tensions between the world’s two largest economies do not cool down over the weekend, said Stanley Chan, director of research at Emperor Securities.

“If there is no further escalation, then the markets will stabilise. But if tensions continue to mount, then the markets may need to go down a bit more to test lower levels,” he said.

Before the latest spike in US-China tensions, mainland stocks had been shooting up for weeks on upbeat sentiment about the mainland’s economic recovery, as the nation became the first in the world to successfully contain the coronavirus and then show steady signs of economic recovery.

While there had been some hand wringing by some worried about another 2015 stock market bubble, investors had been ecstatic over jaw-dropping returns on the

Star Market technology board, which has been creating one billionaire  a month.
In Hong Kong, new economy stocks broadly fell, after traders had piled into the sector on excitement earlier this week over news of a coming tech index and the dual listing of Ant Group in the city and Shanghai.

Index heavyweight Tencent dropped 5.2 per cent, Alibaba fell 3.1 per cent, while Meituan Dianping tumbled 4.2 per cent.

Investor telemedicine darlings were not spared. Alibaba Health Technology plunged 6.7 per cent, while Ping An Good Doctor dropped 5 per cent.

The blow to Hong Kong stocks comes as the benchmark index powered its way into a bull market  on July 6.

Gold, a safe haven asset, continued to rise, heading ever closer to its all-time high. It rose 0.4 per cent to US$1,894.81. Gold hit a record high of US$1,921.17 in 2011. In the US, futures pointed down, with tech stocks under continued selling pressure.

The benchmark finished at 24,705.33, below the key support level of 25,000. The Hang Seng has closed above 25,000 in all but one session this month and has finished as high as 26,339.16, buoyed by what had been overall positive sentiment over a raft of new listings, a coming tech index and the dual listing plans of Chinese finance giant Ant Group in the city and Shanghai.

“All bad news all around,” said Alan Li, portfolio manager at Atta Capital. “Weekly US unemployment rose for the first time in four months. The second US stimulus package was delayed. [China’s central bank] tends to tighten liquidity in the second half. US and China tensions escalating is the last straw to the market.”

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Alan Li Atta Capital

Author: Eleanor Hazelton

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