Global Stocks Fall as China Flexes Muscle on Hong Kong

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05/22/2020 | 03:49 am

By Chong Koh Ping and Anna Hirtenstein

Global stocks declined as China moved to impose new national-security laws on Hong Kong, a measure that would increase tensions with the U.S. and challenge the financial hub's autonomy.

Hong Kong shares plunged, leading regional declines. The Hang Seng Index lost 5.5%, with property, financial and infrastructure stocks retreating between 5% and 9%. The decline put it on course for its worst day since July 2015, Refinitiv Datastream data showed. Its biggest drop during the market turmoil earlier this year came on March 23, when it fell 4.9%.

U.S. stock futures fell, with securities tied to the S&P 500 down 0.9%. The pan-continental Stoxx Europe 600 dipped 1.4%.

Other major stock benchmarks in Asia-Pacific dropped less steeply, tracking U.S. declines on Thursday. Japan's Nikkei 225 slid 0.8% and Australia's benchmark S&P/ASX 200 traded 1% lower. China's benchmark Shanghai Composite Index fell 1.9%.

Beijing lawmakers are reviewing a resolution that would set up new legal and enforcement mechanisms for security in Hong Kong, according to a briefing Thursday. New security restrictions could further undermine the Western-style rule of law and freedoms that have underpinned Hong Kong's role as a global financial center.

New security restrictions could further undermine the Western-style rule of law and freedoms that have underpinned Hong Kong's role as a global financial center.

President Trump said details on Beijing's plans aren't yet known and promised to "address that issue very strongly" if China proceeds. U.S. senators said they were introducing a bipartisan bill that would sanction Chinese officials and entities who enforce the new national-security laws in Hong Kong, and penalize banks that do business with the entities.

Jim McCafferty, joint head of Asia-Pacific equity research at Nomura in Hong Kong, said the pandemic meant the city had been relatively quiet in recent months after months of antigovernment protests.

"Any attempts by China to become more assertive will cause some flashpoints locally," he said, and could help stoke broader geopolitical tension.

Ankit Khandelwal, chief investment officer at Maitri Asset Management, said markets were caught between poor economic data and U.S.-China tensions on one side, and governments' economic support measures on the other.

"The tension between the U.S. and China might dictate the near-term movements of the markets," he said.

On Friday, Chinese Premier Li Keqiang, speaking at the opening of an annual gathering of lawmakers, said the government wouldn't set an economic target for 2020, pointing to the coronavirus and uncertainties around trade.

Mr. Li detailed bond programs totaling 4.75 yuan trillion ($667 billion) to help fund China's recovery from the coronavirus. The proceeds will be channeled to local governments to help boost employment, consumption and investment.

"This is very different from in the past," when Chinese stimulus didn't go directly into local governments' coffers, said Chaoping Zhu, a Shanghai-based global market strategist at J.P. Morgan Asset Management. "This means there will be more money to support local employment and livelihoods and to support the local economy."

However, Mr. Zhu said the measures had disappointed some Chinese investors, since it meant less capital would flow into shares and property.

"The government is not in a hurry to have a new round of very aggressive stimulus measures. Pumping in a lot of money will cause property prices to rise sharply again," he said.

The yield on the 10-year U.S. Treasury bond fell to 0.641% Friday from 0.677% Thursday. Yields move inversely to bond prices.

Brent crude, the global oil benchmark, fell 4.6% to $34.40 a barrel.

Write to Chong Koh Ping at chong.kohping@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

 

Corrections & Amplifications

This story was corrected at 05:18 a.m ET. The original incorrectly stated that Chinese Premier Li Keqiang detailed bond programs totaled Yen4.75 trillion.

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