Stocks in Hong Kong and Shanghai plunged on Thursday as a sell-off on Wall Street spread to Asia, after rising bond yields and higher interest rates spooked investors and caused a broad market rout.
The Chinese onshore yuan was also hit hard, sinking to 6.9331 per dollar, a 21-month low, before bouncing back to 6.9265 late in the afternoon.
Hong Kong’s benchmark Hang Seng Index briefly tanked by 1,068 points, or 4.1 per cent, to 25,125.22, its lowest intraday level since May last year. It closed at a 17-month low of 25,266.37, down 926.70 points, or 3.54 per cent, which is also its biggest single day fall since February 6, 2018, when it dropped by 5.1 per cent.
Overnight, in the US, the Dow Jones Industrial Average and the S&P 500 both slid by more than 3 per cent, for their worst day since February. The Nasdaq logged a 4.1 per cent loss, its biggest decline of 2018. The yield on US 10-year Treasury notes briefly jumped to 3.23 per cent, before dropping back slightly.
Stocks in Shanghai sank by 5.2 per cent to close at their lowest level in four years. Other Asian markets shared the pain, with Japan’s Nikkei 225 index dropping by 3.9 per cent, South Korea’s Kospi declining by 4.4 per cent, Taiwan’s benchmark index shedding 6.3 per cent and Australia’s S&P/ASX200 losing 2.7 per cent.
The global market rout spread to Europe on Thursday afternoon. London’s FTSE 100 dropped 1.7 per cent in morning trading, Paris’ CAC 40 fell by 1.3 per cent and Frankfurt’s DAX lost 1.2 per cent.
“The US equity bloodbath is taking no prisoners in Asia – a sea of red greeted investors at the open as equity deleveraging and liquidation intensified,” said Stephen Innes, head of trading for Asia-Pacific at foreign exchange company Oanda.
The Wall Street rout started on Wednesday, with investors dumping technology stocks. Later the same day, US President Donald Trump blamed the sell-off on interest rate increases implemented by the United States Federal Reserve. Lashing out against the Fed’s tightening policy, he reiterated his preference for lower interest rates.
“The Fed is making a mistake. They’re so tight. I think the Fed has gone crazy,” he told a group of reporters in Pennsylvania, according to the Financial Times. “It’s a correction that we’ve been waiting for, for a long time. But I really disagree with what the Fed is doing, OK?”
Technology stocks also led the fall in Hong Kong on Thursday. Index heavyweight Tencent Holdings, the Chinese gaming giant, tumbled by 6.8 per cent to HK$267.00, having briefly plunged by 7.5 per cent earlier to hit a 15-month low of HK$265.00. Its market cap stands at HK$2.5 trillion.
Apple suppliers AAC Technologies and Sunny Optical Technologies fell by 7.3 per cent to close at HK$69.95, and by 6.2 per cent to finish at HK$71.30, respectively. Mainland Chinese property developer Country Garden dropped 7.1 per cent to HK$7.98 and Geely Automobiles lost 6.3 per cent to HK$12.90. Bourse operator Hong Kong Exchanges and Clearing fell 5.8 per cent to HK$196.70.
And brokers said they believed there was more selling pressure ahead, particularly on technology stocks.
“There needs to be a change in market sentiment, otherwise any rebound will be short lived,” said Louis Tse Ming-kwong, managing director at VC Asset Management. “The US sell-off was led by technology stocks such as Facebook and [Google parent] Alphabet, which plunged overnight.”
As investors dumped stocks in Hong Kong, turnover spiked. For the main board, it was HK$139.74 billion, 62 per cent higher than Wednesday’s volume, HK$86 billion.
Trade in Tencent shares was exceptionally active. Its turnover reached a whopping HK$18.15 billion. The stock single-handedly accounted for 13 per cent of the entire main board’s trading volume. Its turnover was also much higher than its average full-day turnover of HK$8 billion between Monday and Wednesday this week.
The Hang Seng China Enterprises Index, which tracks Chinese companies listed in Hong Kong, slid by 3.4 per cent to 10,092.52 in the afternoon.
“Hong Kong stocks are likely to test new lows,” said Stanley Chik, head of research at Hong Kong-based Smart Securities. “The US market sell-off has a lot to do with rising Treasury yields. But upcoming corporate earnings announcements are also a concern, as investors worry the trade war effect will start to emerge in US companies’ third-quarter results,” he said.
Chik added that Tencent’s continued weakness was a key challenge for the Hong Kong market. The gaming giant has been hamstrung since regulators stopped approving new games as part of an apparent crackdown on internet addiction and content deemed inappropriate.
In mainland China, the benchmark Shanghai Composite Index tumbled by 5.4 per cent to close at 2,578.58, its lowest finish since November 2014.
In Shenzhen, the technology-heavy Shenzhen Composite Index and the ChiNext, the start-up board, erased 6.45 per cent and 6.3 per cent, respectively, by the close. About 1,000 stocks dropped by the maximum allowed 10 per cent on the two exchanges.
Also on Thursday, capital fled mainland China, with net outflows from the Shanghai and Shenzhen bourses totalling 3.5 billion yuan (US$505.2 million), according to data from the Stock Connect scheme that links these mainland bourses with the Hong Kong market.
Combined turnover for Shanghai and Shenzhen markets reached ** billion yuan, ** per cent higher than Wednesday’s 36 billion yuan.
On the currency front, Beijing set the yuan’s daily guidance rate at 6.9098 per US dollar, its lowest in 19 months. Thursday was the eighth straight day that the country’s central bank had lowered the reference rate.
On Thursday afternoon, the onshore yuan weakened by 0.1 per cent to 6.9276 against the US dollar, while the offshore rate also dropped by 0.1 per cent to 6.9341.
On Wednesday, US Treasury Secretary Steven Mnuchin warned China against “competitive devaluation” of the yuan as the US-China trade war escalates, according to a Financial Times report.
Oanda’s Innes, however, said the decline in the yuan was likely to continue. “The PBOC [People’s Bank of China] appears to be in little rush to stem the weakening tide, despite the apparent risk from capital outflows and more equity liquidations,” he said.