Hong Kong stocks fell by the most in two weeks as frictions between the US and China escalated with more Chinese companies put on a trade blacklist and the coronavirus pandemic worsened in Europe.
The Hang Seng Index slipped 0.7 per cent to 26,306.68, trimming the advance this quarter to 12.1 per cent. Benchmarks in the UK fell by more than 1 per cent while stocks in Europe retreated by 2 per cent in early trading and futures on US equities signalled losses in cash markets.
Telecommunications firms led losses in Hong Kong. China Mobile shed 2.9 per cent and China Unicom fell 2.4 per cent, while chip maker Semiconductor Manufacturing International Corp (SMIC) declined 2.9 per cent in Hong Kong and 1.2 per cent in Shanghai.
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President Donald Trump signed into law on Friday the Holding Foreign Companies Accountable Act, which empowers regulators to remove Chinese companies from US stock exchanges if they fail to comply with auditing oversight rules within three years.
The Trump administration also added 60 Chinese companies, including SMIC and closely held drone manufacturer SZ DJI Technology, to the Department of Commerce’s so-called entity list. Beijing has condemned the US move and threatened to impose countermeasures.
“We believe the ultimate impact on Chinese companies will depend on the US implementation,” Jefferies analysts wrote in a December 20 report to clients. “It seems the SMIC ban is targeted and thus the impact will be limited.” The Biden administration is unlikely to be more restrictive than existing actions, it added.
The latest spat promises to keep market sentiment in check after a global rally this quarter pushed stocks to new heights. The Hang Seng Index has risen 12.1 per cent this quarter, the most since the first quarter of 2019. The Shanghai Composite Index is headed for a third quarterly advance amid optimism about global Covid-19 vaccine roll-out.
Notwithstanding the pullback, several stocks reached all-time high in Hong Kong. Xiaomi surged 1.4 per cent to surpass HK$29.2, after broke its HK$30 level for the first time intraday. Toymaker Pop Mart International soared 15 per cent to HK$88.30.
Hong Kong Exchanges and Clearing rose 2.3 per cent to HK$403, capping a 59 per cent surge during 2020. Its market value of US$65.9 billion is just shy of the US$66 billion valuation for CME Group, the world’s second-largest listed exchange operator. Nasdaq Inc is valued at about US$21 billion.
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On the mainland, major gauges rose after the Central Economic Work Conference pledged “no U-turn” in policy support to companies. China will put its focus on eight tasks for the coming year, including strengthening strategic technological innovation, ensuring the control of supply chains and boosting domestic demand.
The Shanghai Composite Index closed 0.8 per cent higher to 3,420.57. The Shenzhen Component Index added 2 per cent while the ChiNext board of tech stocks rose 3.7 per cent.
“The market expectation was that China’s monetary policy will be leaning tight, now the new signal is that it will be prudent and sustained, removing investors’ concerns,” said Yan Kaiwen, analyst at China Fortune Securities in Shanghai.
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Two stocks debuted in China. Property management firm Shenzhen SDG Service surged 153.50 per cent to 47.60 yuan in Shenzhen while Dongguan Dingtong Precision Metal jumped 123.70 per cent to 44.89 yuan in Shanghai.
The pandemic worsened lately with the UK warning about a rapid spread of a new variant of Covid-19. As a result, at least 12 European countries have halted flights from UK. In Sydney, about a quarter of a million people were put on into a strict lockdown until Christmas Eve. Hong Kong confirmed more than 80 cases on Monday.
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