The tragic shooting of a Hong Kong protestor by the police this morning has sparked an aggressive sell-off of Hong Kong stocks that has dragged regional markets with it.
To be fair, the protests had escalated island-wide over the weekend and had, rather unusually continued into today. With Hong Kong already in recession and tourism in free fall, leisure companies and property companies led the rout lower. Hong Kong is now 2.80% lower on the day with no sign of any recovery in sight as investors fret that the chances of direct action from the mainland are now seriously increasing. I have always been sceptical of that myself, but find myself increasingly doubtful of that view after today. More concerning is that the US may be forced to make some sort of diplomatic response to the escalating situation which could affect the trade talks with China, hence the Asian-wide spillover today.
The contagion spilt over into the Mainland where the Shanghai Comp has fallen 1.67%; the CSI 200 has fallen by 1.27% and the A50 by 1.07%. Regional neighbours Japan and South Korea have fared less than expected, with the Nikkei 225 down 0.26%, and the KOSPI by 0.34%. China and trade-sensitive Singapore has fared worse though, the Straits Times dropping 1.04%.
The main narrative of the global markets continues to be the US-China trade talks, and these seem to be progressing forward despite the sometimes conflicting rhetoric. It could well be that by tomorrow, the furore has died down somewhat, and the global recovery trade reasserts itself. Much will depend on the US response to the Hong Kong situation.
The offshore Yuan slumped on the opening today as well with USD/CNH jumping 0.40% to 7.0050, some 200 pips. Thereafter, trading has stabilised, with the USD/CNH consolidating its gains and rising slightly to 7.0075. Again, its next move likely rests with the response of the Americans.