China, Hong Kong Stocks Fall in Sharp Selling on Fresh Trade Worries

(Bloomberg) -- Chinese and Hong Kong stocks saw sharp afternoon selling, in part on fresh worries about U.S.-China trade, and the concerns also pressured the yuan.

After sporting gains much of the morning despite selling in most of Asia, the Shanghai Composite Index fell as much as 0.6% on the day before ending just 0.01% lower. The Hang Seng Index in Hong Kong was down 1% as of 3:12 p.m. and on pace for its biggest decline in a month.

The markets’ drop to session lows came after Reuters reported the U.S. starting in 2018 pushed for the sale of Dutch chip-manufacturing technology to China to be blocked, culminating this past July 18.

The yuan also hit its weakest level of the day after the report, and it was recently 0.2% weaker at 6.9780 per dollar in onshore trading. Ten-year government bond futures rose as much as 0.3% while the Hong Kong dollar was 0.1% stronger versus the greenback, adding to its recent gains and sitting at its highest level since April 2017.

“The latest development adds concern on Sino-U.S. relations as investors were under the impression that the trade tensions would ease going forward,” said Alvin Cheung, associate director with Prudential Brokerage Ltd. President Donald Trump said last week that he would sign an initial trade agreement with China on Jan. 15. Bloomberg reported later Monday that the Chinese trade delegation plans to sign the deal then as well.

Cheung added the equities weakness Monday on the mainland and Hong Kong follow “some decent gains in the past month, so the slightest hint of bad news could prompt funds to lock in profits.” The Shanghai Composite has risen 7.4% since the beginning of December, while the Hang Seng Index has climbed 6.9%.

AAC Technologies Holdings Inc. and Sunny Optical Technology Group Co. were among technology shares that led declines in Hong Kong, falling nearly 4%. In China, heavy-vehicle makers CNHTC Jinan Truck Co. and Sany Heavy Industry Co. fell 4.3% and 3.3%, respectively.

To contact Bloomberg News staff for this story: Livia Yap in Shanghai at lyap14@bloomberg.net;Amanda Wang in Shanghai at twang234@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Kevin Kingsbury

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With assistance from Bloomberg