Hong Kong’s stock market declined significantly on Monday with a drop of 767.26 points at the close, hit with a one-two punch of a general strike in the city and the escalating Sino-US trade tensions.
The benchmark Hang Seng Index opened 438 lower and then slumped 831 points to its intraday low of 26,087 in the morning before afternoon trading began to level off. Market turnover contracted to HK$99.47 billion.
The Hang Seng China Enterprises (H-share) Index closed lower 266.99 points, or 2.58 percent, to 10,081.64.
The recent resurgence in the US dollar meant the renminbi needs to weaken against the US dollar in order to maintain stability against its currency basket
chief market strategist at JP Morgan Asset Management APAC
Shares of airline companies plunged as the strike has led to more than 200 flight cancellations. Hong Kong’s largest carrier, Cathay Pacific Airways, fell 4.24 percent after over 70 flights were canceled. Mainland carriers Air China and China Southern Airlines declined 5.96 percent and 6.13 percent respectively.
Investment bank Jefferies Hong Kong has turned a “moderately bearish” view to Hong Kong’s equity market, considering the condition in the city and the ongoing trade frictions, according to a report released on Monday.
US President Donald Trump slapped 10 percent tariffs on US$300 billion Chinese imports on Thursday, which shocked the market and ended a months-long trade truce. On Friday, China vowed it would fight back.
The escalating trade tensions between the two largest economies in the world pulled the renminbi down on Monday. The renminbi tumbled past the key benchmark of 7 yuan per US dollar on Monday as the currency heads for its weakest level against the dollar since the global financial crisis of 2008.
The onshore CNY closed at 7.0352 yuan per US dollar on Monday. The offshore CNH breached the key 7.1–yuan mark against the greenback in the morning.
The renminbi has come under more depreciation pressures, and it is a natural market reaction to breaking 7 yuan per dollar, said Wang Tao, chief Asia and China economist of UBS Investment Bank.
The People’s Bank of China said in a statement the depreciation of the renminbi was due to trade protectionism and tariffs on Chinese goods.
It added the exchange rate movement depends on fundamentals over the long term, but the short-term market supply and changes in the US dollar could also have a relatively huge impact on the renminbi in the near term.
China’s foreign exchange policy stance will not change, after the yuan breached the key level of 7 yuan per dollar, the central bank said it will take necessary and targeted measures to fight short-term speculation and ensure stable operation and stable expectations in the FX market.
“The drop in the onshore and offshore renminbi today reflects both economic and policy considerations. The recent resurgence in the US dollar meant the renminbi needs to weaken against the US dollar in order to maintain stability against its currency basket,” said Tai Hui, chief market strategist at JP Morgan Asset Management APAC.
He said investors need to focus more on the policy implications following a new round of tariffs threatened by Trump on Chinese exports, and suggested maintaining a well-diversified portfolio of fixed income.
Wang of UBS predicted the yuan would stabilize at 7.2 per US dollar at the end of 2019 and 7.3 by 2020 if the US imposed 25 percent tariffs on the remaining $300 billion of Chinese exports.
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