Hong Kong stocks extend losses as Ukraine war feeds recession risks while city lockdown, tech crackdown concerns linger

  • Sell-off on Hong Kong stocks deepens as Tencent and NetEase slide after China delegates propose control over gaming industry
  • Hang Seng Index members trade at the widest discount to book value in at least a decade; Alibaba, Meituan buck the sell-off

Hong Kong stocks fell from a five-year low on concerns the Russia-Ukraine war will drag the global economy into a recession. Investors fretted about a lockdown in the city as markets regulator called for businesses to ensure continuity.

The Hang Seng Index lost 0.5 per cent to 20,961.97 at the local noon trading break, reversing a 1.2 per cent rebound. The index slumped 3.9 per cent on Monday. The Tech Index weakened 1.7 per cent while the Shanghai Composite Index slid 2 per cent. Key markets in Asia-Pacific also retreated, following overnight losses in US equities.

More than half of the 66 Hang Seng Index members declined, as BYD and China Resources Beer slumped more than 5 per cent. Game developers Tencent fell 0.9 per cent and NetEase lost 1.6 per cent, after delegates at China’s annual legislative meeting proposed to further tighten its grip on the industry.

Bucking the overall weakness, Alibaba Group Holding, the owner of this newspaper, and Meituan both recovered from their all-time lows with at least 1.5 per cent advance.
Investors are reassessing the risks of runaway inflation and recession as prices of commodities and grains from nickel to wheat hit record highs. Crude traded above US$120 a barrel, the highest since 2008, while Russia threatened to disrupt gas supply in Europe.

“The risk from the geopolitical tension will continue to increase going forward,” said Cheng Yu, a fund manager at HSBC Jintrust Fund Management in Shanghai. “The market is still facing big uncertainty amid inflationary pressure and policy tightening.”

The spectre of citywide lockdown appears to unsettle trading and business continuity. Hong Kong reported more than 20,000 new Covid-19 cases on Monday, after a week of over 50,000 infections. The stock exchange operator pledges to keep markets fully functioning “whatever the prevailing environment.”

Locals stocks failed to sustain an early rebound, despite a technical indicator showing the rout in stocks was excessive. The Hang Seng Index’s 14-day relative strength index fell to 23 on Monday, below the 30 threshold that traders rely on as an oversold condition.

The index members currently trade at 14 per cent below their book value, the widest discount in at least a decade, according to Bloomberg data.

Separately, yuan-denominated stocks also failed to recover. They are seen offering better shields and are likely to fall less than global peers amid risk-off sentiment, according to BCA Research. Policymakers have ample room to stimulate the economy, it argues in a report on March 2.

Author: Zhang Shidong, SCMP

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