Hong Kong Stocks Tumble, Leading Regional Markets Lower -- Update

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05/22/2020 | 02:08 am

By Chong Koh Ping

Hong Kong shares plunged, leading regional declines, after China signaled it will impose new national-security laws on the city.

By early afternoon Friday in Hong Kong, the Hang Seng Index had lost 5.6%, with property, financial and infrastructure stocks retreating between 5% and 9%.

The Hang Seng's 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%. HSBC Holdings PLC dropped 4.7% on Friday, broadly in line with the wider pullback.

Other major stock benchmarks in the Asia-Pacific region dropped less steeply, tracking U.S. declines on Thursday. Japan's Nikkei 225 and Australia's benchmark S&P/ASX 200 traded 0.9% lower. South Korea's Kospi Composite and the Shanghai Composite fell 1.6% and 2% respectively.

E-mini S&P 500 futures fell 0.8%.

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 coronavirus 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 trillion yuan ($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 note fell to 0.650% on Friday in Asia, from 0.677%. Yields move inversely to bond prices.

Brent crude, the global oil benchmark, fell 3.8% to $34.68 a barrel.

Write to Chong Koh Ping at chong.kohping@wsj.com

 

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