Hong Kong Protests Dent Stocks While Shanghai Shares Rally This Week

(Bloomberg) -- Hong Kong stocks emerged from a topsy-turvy week still in the black -- but with considerable worries weighing on sentiment.

After surging 2.3% at the start of the week amid global optimism over monetary policy easing, the Hang Seng Index slumped on Wednesday as protests rocked the city’s financial district and interbank borrowing costs spiked. The gauge posted its best weekly gain since early May, bolstered by inflows from Shanghai and Shenzhen, but stocks on the mainland did better.

China’s beaten-down equity market saw buyers return to push the benchmark Shanghai Composite to its best showing in eight weeks, emboldened by stimulus signals to offset U.S. President Donald Trump’s latest tariff threats. The ChiNext Index also gained, adding 2.7% after slumping into a bear market last week on escalating trade tensions. The tech-heavy gauge is still up 16% this year.

Beware Yuan Bears

The People’s Bank of China this week made it clear to yuan bears that short-term declines are no sure thing. In a bid to deter one-way depreciation bets ahead of this month’s Group of 20 meeting, authorities have set a run of higher-than-expected reference rates to shore up the currency. The central bank also plans a bill sale in Hong Kong this month. Comments from its chief suggest there is no line in the sand for the yuan, while its ex-governor has raised the prospect of competitive devaluation if the trade war escalates.

Chart of the Week

Hong Kong’s short-term borrowing costs hit the highest levels in a decade, adding to the strain on the city’s financial markets this week. The cash squeeze pushed the one-month interbank borrowing cost, known as Hibor, above the 12-month tenor for the first time in more than a decade, although that gap narrowed on Friday.

Here’s what else caught our eye this week:

• Hong Kong government’s bill tactics are being questioned
• President Donald Trump could amplify Hong Kong protests
• City’s financial elite feel the sting of tear gas
• Alibaba said to make its picks for Hong Kong offer
• Chinese brokerages step into furor over UBS comments
• Smoking, skipping school pays for Chinese stock investors
• Huawei to world: let us in
• Rallies are becoming less rare for these stocks
• Bloomberg’s interview with PBOC Governor Yi Gang

--With assistance from Tian Chen.

To contact the reporter on this story: David Watkins in Hong Kong at dwatkins19@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Magdalene Fung

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