Kana Nishizawa, Weiyi Lim and Fion Li Hong Kong
HONG Kong’s stocks fell the most in almost three weeks yesterday, the city’s currency weakened and equity market volatility surged amid the biggest police crackdown on protesters since the city returned to Chinese rule.
The benchmark Hang Seng index sank 1.9 percent to close at 23 229.21 as developers and retailers tumbled. A gauge of stock volatility jumped 24 percent, the steepest surge in three years. The city’s currency slid to a six-month low and one-year interest rate swaps climbed the most in 15 months.
Pro-democracy protesters vowed to press ahead with demonstrations unless Hong Kong’s top official stepped down. Rallies in the shopping areas of Causeway Bay and Mong Kok caused banks to shut branches and deterred tourists.
“The market is likely to remain very cautious,” Tai Hui, the chief Asia market strategist at JPMorgan Asset Management, said.
“In the short term there’s going to be a shock to the markets but it’s still more important to look at aspects such as fundamentals and valuations.”
The biggest clashes in Hong Kong for decades are disrupting businesses in one of Asia’s financial centres and risk a strong response from the government in Beijing if they are prolonged.
The showdown adds to concerns about falling retail sales and a looming rise in US interest rates, which have fuelled a 6.5 percent drop in the Hang Seng index from this year’s high on September 3 to Friday.
“We expect the battleground atmosphere on Hong Kong’s streets to add to the drag on retail sales in September,” Tim Condon, the Singapore-based head of Asian research at ING Groep, wrote in a note to clients.
Figures for August released after markets closed yesterday showed retail sales by value unexpectedly rose for the first time in seven months. Sales rose 3.4 percent from a year earlier, while the median forecast was for a drop of 2 percent.
Data at the weekend showed profits at industrial companies in China declined last month for the first time in two years as a slowdown there deepens.
Retailers and tourism-related companies might be among the most affected on speculation that protests would deter mainland tourists from visiting during holidays that would begin tomorrow, said Gavin Parry, the managing director of Hong Kong brokerage Parry International Trading.
Financial shares in the market might also come under pressure, Ronald Wan, the chief China adviser at Asian Capital Holdings in Hong Kong, said.
HSBC Holdings was the biggest drag on the Hang Seng index yesterday, falling 1.8 percent. Luk Fook Holdings International, which sells jewellery, sank 4.8 percent. Hong Kong Exchanges & Clearing tumbled 3.2 percent.
Financial firms such as HSBC comprise about 56 percent of the Hang Seng index while consumer-related stocks have a 7 percent weighting.
Developers accounted for seven of the 10 biggest declines on the MSCI Hong Kong index.
“This kind of noise will affect developers,” Tanrich Securities investment manager William Fung said. “Anywhere with political instability, property prices drop.” – Bloomberg