Hong Kong and Shanghai stocks plunged on Thursday morning as a sell-off on Wall Street spread to Asia after rising bond yields and interest rate increases spooked investors and caused a broad market rout.
The Chinese yuan was also hit hard, sinking to a 19-month low.
Hong Kong’s benchmark Hang Seng Index briefly tanked 1,033 points, or 3.9 per cent, to 25,159.69, the lowest intraday level since May last year. By the mid-session close, it was down 986.04 points, or 3.8 per cent, at 25,207.03.
As investors dumped stocks, turnover spiked. The half-day turnover for the main board increased to HK$74.8 billion, nearly 90 per cent of Wednesday’s volume for the entire day, HK$86 billion.
Index heavyweight Tencent Holdings was trading 7.43 per cent lower at HK$265.240 by lunchtime, having briefly plunged 7.5 per cent earlier to hit a 15-month low of HK$265.00.
Trading was exceptionally active for shares of the Chinese social media and gaming giant, whose half-day turnover reached a whopping HK$9.3 billion. The stock single-handedly accounted for 12 per cent of the entire main board’s trading volume, with the half-day turnover higher than Tencent’s average full-day turnover of HK$8 billion from Monday to Wednesday of this week.
All 50 component stocks on the Hang Seng Index dropped. Tencent, Sunny Optical Technology, and AAC Technologies were the only three stocks losing more than 7 per cent.
The US equity bloodbath is taking no prisoners in Asia as a sea of red greets investors
Stephen Innes, head of trading Asia Pacific, Oanda
The Hang Seng China Enterprises Index, which tracks Hong Kong-listed Chinese companies, slid 4.1 per cent to 10,015.01 by the noon break.
“The US equity bloodbath is taking no prisoners in Asia as a sea of red greets investors at the open as equity deleveraging and liquidation intensifies,” said Stephen Innes, head of trading for Asia Pacific at Oanda.
“If the Feds are crazy, this market reaction is bordering on insanity, as so many negative cross-currents collide that is merely impossible to find a glint of optimism.”
He was referring to comments made by President Trump on Wednesday in which he called the US Federal Reserve “crazy” for raising interest rates.
“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,” said Stanley Chik, head of research at Hong Kong-based Smart Securities.
“Hong Kong stocks are likely to test new lows today.”
Chik said Tencent’s continued weakness is a key challenge for the Hong Kong market. The Chinese 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 4.5 per cent to 2,603.89 by the lunch break, having briefly touched a four-year low of 2,601.84 during the morning.
On the tech-heavy Shenzhen exchange, the Shenzhen Composite Index and the start-up board, the ChiNext, both lost more than 5 per cent by noon.
Capital fled mainland China for overseas. Net outflows from the Shanghai and Shenzhen exchanges totalled 3.5 billion yuan on Thursday morning, according to data from the Stock Connect scheme linking mainland and Hong Kong markets.
Combined half-day turnover for Shanghai and Shenzhen markets stood at 222.1 billion yuan, almost equal to Wednesday’s full-day turnover of 236 billion yuan.
Elsewhere in Asia, Japan’s Nikkei 225 dropped heavily, falling 4.2 per cent to 22,514.14. Australia’s S&P/ASX200 lost 2.5 per cent to 5,899.20. South Korea’s Kospi fell 3.7 per cent to 2,145.42.
On the currency front, the Chinese authorities set the yuan’s daily guidance rate at 6.9098 per US dollar, the lowest in 19 months. It is the eighth straight day the central bank has lowered the reference rate.
On Thursday morning, the onshore yuan weakened 0.1 per cent to 6.9317 against the US dollar, while the offshore rate dropped 0.3 per cent to 6.9420.
Innes said the Chinese yuan’s decline is 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.
US stocks slump as Trump blames ‘crazy’ Fed and traders urge against panic
Overnight in the US, the Dow Jones Industrial Average and the S&P 500 both slid more than 3 per cent, their worst days since February. The Nasdaq logged a 4.1 per cent loss, the biggest decline of 2018.
The yield on the US 10-year Treasury note briefly jumped to 3.23 per cent, before dropping back slightly.
US President Donald Trump on Wednesday lashed out at the Federal Reserve’s tightening policy again, reiterating 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?”
On the same day, US Treasury Secretary Steven Mnuchin warned China against “competitive devaluation” of the yuan as the US-China trade war escalated, according to a Financial Times report.