Hong Kong Stocks Close on Brink of Bear Market as Tech Slides

(Bloomberg) -- Hong Kong stocks dipped into a bear market before closing just outside as the worsening U.S.-China trade dispute prompted investors to pull out of riskier assets.

The Hang Seng Index closed down 1.3 percent at 26,613.42 points. An hour earlier, it slid as low as 26,453.29 points, taking its loss from a Jan. 26 high to beyond 20 percent, a level that defines a bear market. The benchmark’s worst performer was Sunny Optical Technology Group Co., followed by AAC Technologies Holdings Inc. as Apple Inc. warned tariffs would affect many of its products and increase costs. Apparel and footwear companies also fell.

Mainland shares fell too. The Shanghai Composite Index declined 1.2 percent to within 15 points of its 2016 closing low. U.S. President Donald Trump told reporters Friday that he’s ready to impose tariffs on an additional $267 billion of Chinese goods, which would take the total amount of levies to more than the value of all goods the U.S. buys from China.

Hong Kong Stocks Close on Brink of Bear Market as Tech Slides

“While stocks have somewhat priced in possible implementation of U.S. tariffs, sentiment remains cautious due to uncertainty over the impact on China’s economy,” said Linus Yip, strategist with First Shanghai Securities Ltd. “Beside the tariffs, rising expectations of Fed rate hikes after better employment data are weighing on Hong Kong stocks too, as the city faces greater pressure to increase rates.”

Economic Data

Data released over the weekend showed China’s trade surplus with the U.S. rising to a record in August, though overall export growth slowed. More economic figures released Monday showed China’s consumer price index rose 2.3 percent in August versus a forecast of 2.1 percent, while producer prices rose 4.1 percent. August data on retail sales and industrial output are also due this week.

“The CPI growth rate is still lower than the government’s 3% target, but the rising trend is causing worries,” said Banny Lam, head of research at Ceb International Investment Corp. “Rising inflation is always a bad sign for the market, as the government could be reluctant to announce more easing in case inflation picks up.”

Chinese and Hong Kong equity markets are among the worst-performing in the world this year, as concerns over trade tensions, a weaker yuan and signs of a slowing economy weigh on investor sentiment. The liquid nature of Hong Kong’s market also makes it vulnerable to jitters in emerging markets as investors sell their holdings in the city first.

“It’s hard to gauge the compounded impact on the domestic economy now and sentiment seems quite pessimistic,” said Liang Jinxin, an analyst with Tianfeng Securities Co.

The Trump administration is also considering sanctions on Chinese entities caught stealing U.S. intellectual property via cyber attacks, according to people familiar with the matter, highlighting how the administration has been looking at raising the pressure on Beijing via measures beyond tariffs.

A measure of technology companies slid the most on the CSI 300 Index, with Apple suppliers Luxshare Precision Industry Co. falling 10% and Lens Technology Co. tumbling more than 6 percent. Hon Hai Precision Industry Co. fell 3.4 percent in Taiwan. In addition to higher costs, a possible rise of nationalism in China might lead to boycotts of American brands such as Apple, hurting suppliers, said Yeason Jung, an analyst at Capital Futures Corp. in Taipei.

Li & Fung Ltd., whose customers include Nike Inc. and Walmart Inc., tumbled for a 10th day in Hong Kong, while other sportswear companies that escaped previous rounds of tariffs also declined. Anta Sports Products Ltd. dropped 3.7 percent and Li Ning Co. lost 2.1 percent. Appliance makers fell too amid concerns over China’s property market. Gree Electric Appliances Inc. slid 1.5 percent in Shenzhen and Zhejiang Supor Co. fell 1.4 percent. China is prioritizing a real estate tax, the People’s Daily reported over the weekend.

To contact Bloomberg News staff for this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net;Amanda Wang in Shanghai at twang234@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net

©2018 Bloomberg L.P.

With assistance from Editorial Board