Hong Kong stocks hit post-pandemic lows as Russia sanctions widen while rally in commodities stokes inflation worries

  • Local equities slide in worst month since November, as sanctions on Russia over its Ukraine invasion widen, including restrictions on its foreign reserves
  • Risky assets waned as a flight to safety buoys the US dollar and Treasuries while prices for oil and gold jump, stoking inflation concerns

Stocks in Hong Kong and mainland China slipped as the US and its allies started to sanction Russia over its Ukraine invasion, fanning a rally in safe haven assets and commodity prices.

The Hang Seng Index tumbled 1.4 per cent to 22,452.16 as of local noon trading break, the lowest since the depth of the pandemic in March 2020. The benchmark slumped 6.5 per cent last week. The Tech Index also lost 1.4 per cent while the Shanghai Composite Index dropped 0.1 per cent.

Alibaba Group led the retreat among Chinese tech peers, with a 3.2 per cent loss as analysts continued to trim their price targets after its earnings report last week. AAC Tech, Geely Auto and Sino Biopharmaceutical all fell by more than 4 per cent, while WH Group tumbled more than 2 per cent.

“The sanctions, and the financial turmoil delivered to Russia, will cause a significant impact to global markets in the short term,” analysts at CMB International wrote on Monday. “Energy, agricultural products and safe-haven assets will rally, while stocks will be under pressure.”

The US and the European leaders banned certain Russian lenders from the SWIFT global payment and messaging network over the weekend. Higher commodity prices are seen fanning inflation, choking economic recovery.

The US and its allies also put restrictions on Russia’s central bank reserves to prevent it from undermining the sanctions. President Vladimir Putin, meanwhile, placed its nuclear-armed forces on high alert on Sunday.

“We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” the Western leaders wrote. “Even beyond the measures we are announcing today, we are prepared to take further measures to hold Russia to account for its attack on Ukraine.”

The US dollar and Treasuries strengthened while oil surged 5.8 per cent to trade above US$96 per barrel on supply disruption concerns. Gold jumped 0.9 per cent to US$1,900 an ounce, approaching the US$2,063 record set in August 2020.

The Hang Seng Index has weakened 5.9 per cent in February, set for the worst month since a 7.7 per cent pullback in November. The index gained 1.7 per cent gain in January. In the face of external volatility, China is likely to boost liquidity and stimulus to stabilise the economy, CMB International said.

While Covid-19 outbreaks and geopolitical tensions have weighed on Hong Kong’s markets, it could be an entry point for value stocks, said Linus Yip, chief strategist at First Shanghai Securities.

“There will still be fluctuation in the short term [with the conflict surrounding Ukraine], but the valuation for Hong Kong stocks is so low. It is a good time to accumulate for value stocks,” said Yip.

Two firms started trading for the first time in mainland China. Shenzhen Han’s CNC Technology sank 12 per cent, while Shanghai Smart Control surged 44 per cent.

Author: Cheryl Heng, SCMP

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