News from China that the US had told it to close its consulate in Houston, Texas, yesterday sent the Hang Seng plummeting and caused a bout of risk aversion in European trading, but stock markets had been consolidating anyway after their recent surges.
Hong Kong stocks fell the most in nearly six weeks, as signs of escalating Sino-US tensions weighed on the market sentiment.
The Hang Seng Index closed down 577.72 points, or 2.25 percent, at 25,057.94, its biggest fall since June 11.
The Hang Seng China Enterprises Index fell 1.93 percent to 10,243.51, ending a three-day rise.
The sub-index of the Hang Seng tracking energy shares rose 2.1 percent, while the IT sector dipped 4.66 percent, the financial sector ended 2.09 percent lower and the property sector dipped 2.6 percent.
The latest tensions between Beijing and Washington have put investors on edge and caused concern that a possible worsening of ties will dampen enthusiasm for riskier assets, market watchers have said.
The yuan also fell, erasing an earlier gain, and government bonds advanced.
“People got scared about the US consulate closure. It’s normal to be scared, because there was very little information about this and it’s a very big downside surprise,” CEB International Investment Corp head of research Banny Lam (林樵基) told Reuters.
However, Nathan Chow (周洪禮), a senior economist at DBS Bank Ltd’s Hong Kong branch, said that he did not think the move would have a long-term impact.
China’s offshore yuan weakened to US$7.0028 on the news, while the US dollar index inched up 0.2 percent from March lows it had hit on Tuesday.
Europe’s morning dip added to the list of gyrations keeping traders occupied.
The pan-European STOXX 600 extended its early drop to stand down 1 percent by 9am in London. Commodity-linked stocks, along with travel and autos, provided the biggest drags, with falls of about 2 percent.
S&P 500 futures were also down 0.5 percent following Tuesday’s mixed session on Wall Street, amid concern about rising COVID-19 cases in the US and political disagreement over the next US fiscal aid package.
In early trading, Germany’s DAX fell 0.4 percent to 13,113 and the CAC 40 in Paris lost 1.2 percent to 5,044, while the UK’s FTSE 100 fell 0.9 percent to 6,216.
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