Hong Kong Stocks Slump, Yuan Slides to 11-Year Low on Trade War

(Bloomberg) -- Hong Kong stocks slumped and the yuan weakened to an 11-year low as concern over the U.S.-China trade war spurred risk-off sentiment.

The Hang Seng Index closed down 1.9% in Hong Kong, after falling as much as 3.6%. Meat producer WH Group Ltd., AAC Technologies Holdings Inc. and Cnooc Ltd. were among the worst performers. The yuan slid 0.6% to 7.1425 per dollar, while the Shanghai Composite Index closed 1.2% lower.

Hong Kong stocks tumbled earlier Monday after China and the U.S. announced additional levies on each other’s goods, and President Donald Trump called for American companies to pull out of Asia’s largest economy. Equities pared declines after the U.S. leader said Monday the Chinese government called his team to restart talks.

Adding to the risk-off sentiment, Hong Kong police and protesters clashed for a 12th weekend and China sent the strongest warning yet it’s thinking of using troops on the city’s streets.

"Pessimism prevails in the market," said Banny Lam, head of research at CEB International Investment Corp. "On the flip-side, with both sides ramping up tariffs it means that there’ll be limited room for more increases in the near future. The index will face some pressure but there’ll be buying opportunities in some sectors."

The offshore yuan was down 0.4% at 7.1624 per greenback, after falling as much as 0.86% earlier to a record low. The central bank set its daily fixing at 7.0570 on Monday, stronger than analysts expected. The onshore yuan has dropped 1.8% in an eight-session losing streak.

"Yuan depreciation is an obvious cushion against US tariffs," said Mitul Kotecha, a senior emerging markets economist at Toronto-Dominion Bank. "As long as China can ensure that yuan weakness is well controlled i.e. it does not provoke strong outflows, expect to see further depreciation in the currency."

The Hang Seng Index closed at its lowest level since Aug. 15. A gauge of the city’s property stocks fell 2.1%.

“It’s not only China central government’s authority but also its responsibility to intervene when riots take place in Hong Kong,” the state-run Xinhua News Agency said Sunday in a commentary, drawing on comments by former top leader Deng Xiaoping saying Beijing has to act under such circumstances.

--With assistance from Claire Che and Amanda Wang.

To contact Bloomberg News staff for this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net;Livia Yap in Singapore at lyap14@bloomberg.net

To contact the editors responsible for this story: Sarah Wells at smcdonald23@bloomberg.net, David Watkins, Philip Glamann

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With assistance from Bloomberg