The Hong Kong and China stock markets were dragged down by technology stocks on Monday, with top Chinese semiconductor producer SMIC falling by as much as 23 per cent after the Trump administration said last week it might blacklist the company.
The Hang Seng Index, which fell 2.9 per cent last week, declined 0.4 per cent on Monday to 24,589.65. The Shanghai Composite recorded its biggest decline since July 24 and dropped for a fourth trading day in a row, ending Monday 1.9 per cent lower at 3,292.59. The Nasdaq-like ChiNext also recorded its biggest drop since July 24 and shed 3.3 per cent to 2,641.20.
A decline in technology stocks led by SMIC, the return of protests to the city’s streets over the weekend and a spillover of risk-off sentiment from Wall Street contributed to the declines.
The markets were on Monday also closely watching whether China’s economic recovery was sustainable. Improved trade data for August released in the morning showed that the total value of exports and imports rose 6 per cent to 2.88 trillion yuan (US$421.7 billion) last month, with exports rising 11.6 per cent to 1.65 trillion yuan and imports dropping 0.5 per cent to 1.23 trillion yuan.
The data was generally in line with market expectations, said Willer Chen, an analyst at Forsyth Barr Asia in Hong Kong. “The market’s interpretation of data coming out of China is tricky,” he said, adding that stocks got only a limited boost on Monday, as there was still some doubt among investors about China’s economic recovery.
The two-month old Hang Seng Tech Index shed 4.6 per cent on Monday. SMIC was the biggest loser on the day, plunging 23 per cent, after the White House said it was considering whether to add the semiconductor maker to a trade blacklist, which would force its US suppliers to seek a difficult to obtain licence before shipping to the company, a Pentagon spokeswoman said on Friday.
Other technology stocks affected by the latest escalation in US-China tensions included China-based Hua Hong Semiconductor, which fell 14.4 per cent, and BYD Electronic, which dropped 7.4 per cent, both in Hong Kong.
“Sentiment is relatively weak … the drop in technology stocks in the US affected the investment sentiment for such stocks in Hong Kong and China, which were further pressured by the Trump administration’s hostile actions ahead of the [US presidential] elections” in November, said Ernie Hon, head of research at Essence International Securities in Hong Kong.
E-commerce giant and South China Morning Post parent Alibaba Group Holding, which was added to the Hang Seng Index on Monday along with smartphone maker Xiaomi and biotechnology company WuXi Biologics, also dropped 3.1 per cent. Xiaomi fell 1.4 per cent and WuXi was down 3.6 per cent.
Alibaba, Xiaomi and WuXi have risen quite a bit since mid-August, following the announcement of their inclusion in the index, and its “positive impact has already been priced in”, said Forsyth Barr’s Chen, adding that new components of the index tended to fluctuate in the first 10 days after being added to the benchmark.
CK Asset Holding’s share price, on the other hand, rose 1.5 per cent after Caixin reported that it was considering selling two projects worth up to 50 billion yuan in Beijing and Shanghai to mainland developer Sunac. Hong Kong-listed Sunac dipped 0.6 per cent.
Elsewhere, Baby milk formula giant China Feihe shed 1.4 per cent after it offered HK$3 billion to buy its supplier YuanShengTai Dairy Farm.
The subdued start to the week followed a tumble in technology stocks on Wall Street that last week led to the biggest two-day slide in global equities since June. Doubts about the sustainability of lofty valuations drove broad declines in Asian markets at the end of last week.
In Hong Kong, about 300 people were arrested during protests on Sunday. They were demonstrating against the government’s decision to postpone legislative elections for a year over public health concerns amid a third coronavirus wave and the national security law imposed by Beijing.
And weaker sentiment was expected through September and October, with tensions between China and the US expected to rise in the run up to the US presidential elections in November.
“More fluctuations are likely in September. After that there will be chances for a rebound, but it also depends on the progress of [a new] stimulus package in the US” aimed at relieving the affects of Covid-19, Essence International Securities’ Hon said.
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