Fresh Hong Kong fears spark sell-off across Asia

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HONG KONG, May 22, 2020 (BSS/AFP) – Hong Kong led a sell-off across Asian
equities Friday after China introduced proposals to enact a national security
law for the city, fanning geopolitical tensions and overshadowing optimism
about a further easing of virus lockdowns across Europe and the US.

After months of concentrating on the economic impact of the coronavirus,
traders’ attention flipped back to China-US tensions, already exacerbated by
Donald Trump’s constant criticism of Beijing’s handling of the pandemic.

On the first day of its rubber-stamp parliament, China submitted proposals
to strengthen “enforcement mechanisms” in the financial hub, after it was
rocked last year by seven months of massive and sometimes violent pro-
democracy protests.

Plans for the announcement had sparked warnings of “the end of Hong Kong”
and fears of further unrest, which crippled the city’s economy, even before
the coronavirus struck.

And it sparked criticism from Washington, with the State Department saying
the move would be “highly destabilising, and would be met with strong
condemnation from the United States and the international community”.

Shares in Hong Kong sank more than four percent going into the break, with
financials and property firms battered as investors fretted about the city’s
economic future.

“Riots in the street and plummeting real estate markets might be the least
of Hong Kong’s building wall of worry as this authoritarian national security
plan will most certainly bring into question HK status as a global banking
centre,” said Stephen Innes of AxiCorp.

US lawmakers have already passed a law that would strip the city’s
preferential trading status in the United States if it no longer enjoys
autonomy from the mainland.

“The geopolitical risks are meaningful,” David Riley, chief investment
strategist at BlueBay Asset Management LLP said on Bloomberg TV. “It’s a
concern for the market, and is a potential source of weakness and a
correction.”

– More stress for markets –

And Kenny Wen of Everbright Sun Hung Kai Co, added: “We could have new
protests. Local tensions could trigger Sino-US tensions and the latter is much
more stressful for market sentiment and macroeconomy.”

Losses elsewhere in Asia were shallower than in Hong Kong.

Tokyo fell 0.7 percent, while Shanghai, Seoul, Taipei, Manila and Bangkok
dropped more than one percent.

Singapore shed two percent and Sydney was 0.8 percent off, while Wellington
and Mumbai dropped 0. 4 percent.

The Chinese congress also saw leaders make the rare move of not setting an
annual growth target this year owing to the virus crisis, with Premier Li
Keqiang saying that Beijing will “give priority to stabilising employment and
ensuring living standards”.

Concerns about China-US tensions took away from news that more countries
were edging out of virus lockdowns after new deaths and infections ease and
observers said the worst of the pain for the global economy may have passed.

Still, the US reported another 2.43 million workers applied for unemployment
benefits last week, bringing the total since the shutdowns began in mid-March
to 38.6 million.

The fresh uncertainty also weighed on oil prices, with WTI off nearly five
percent with profit-taking also playing a part after weeks of strong gains.

Both main contracts were above $30 per barrel however, thanks to a huge cut
in output by key producers and on hopes for increased demand as lockdowns are
lifted.

– Key figures around 0445 GMT –

Tokyo – Nikkei 225: DOWN 0.7 percent at 20,407.68

Hong Kong – Hang Seng: DOWN 4.6 percent at 23,160.11 (break)

Shanghai – Composite: DOWN 1.3 percent at 2,830.45 (break)

West Texas Intermediate: DOWN 4.9 percent at $32.26 per barrel

Brent North Sea crude: DOWN 3.4 percent at $34.84 per barrel

Euro/dollar: DOWN at $1.0931 from $1.0949 at 2100 GMT

Dollar/yen: DOWN at 107.43 yen from 107.60 yen

Pound/dollar: DOWN at $1.2209 from $1.2223

Euro/pound: UP at 89.53 pence from 89.57 pence

New York – Dow: DOWN 0.4 percent at 24,474.12 (close)

London – FTSE 100: DOWN 0.9 percent at 6,015.25 (close)

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