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Hong Kong Stocks Retreat Further as Protest Fallout Deepens

Bloomberg logoBloomberg 2019-08-13 Sofia Horta e Costa and Ken Wang

a group of people walking on a city street: Hong Kong Goes on Strike After Weekend Protests© Bloomberg Hong Kong Goes on Strike After Weekend Protests (Bloomberg) -- Hong Kong’s stocks fell for a third day as protesters again gathered at the city’s airport, highlighting the economic fallout from weeks of anti-government demonstrations that show no sign of easing.

The Hang Seng Index closed down 2.1%. The city’s international airport faced a fifth straight day of protests, after a mass sit-in by demonstrators caused it to halt service on Monday. Hong Kong’s embattled leader Carrie Lam warned that the Asian financial center risked sliding into “an abyss,” in a contentious news conference in which she continued to sidestep key questions about the government’s response to weeks of unrest.

Demonstrators push a barricade in North Point, Hong Kong on Aug. 5.

The Hang Seng Properties Index fell 2.3% and entered a technical bear market, having fallen more than 20% from an April peak. Cathay Pacific Airways Ltd, which on Monday tumbled to its lowest levels in a decade after after China’s aviation regulator barred staff who had taken part in demonstrations from flying to the mainland, fell 2.6%. In a research note, state-run Industrial & Commercial Bank of China Ltd. cut the stock to a "strong sell" and said the fallout from protests in Hong Kong would hurt the airline’s brand.

"The market is extending declines today and selling pressure is still very huge," said Linus Yip, First Shanghai Securities strategist. "Names that used to be defensive are falling, such as utilities, MTR Corp. and REITs, which shows investors are very cautious. We haven’t seen the bottom yet." MTR Corp., regarded as one of Hong Kong’s safest stocks before the protests began, fell 3.9%. Prada SpA tumbled 7.1%.

Black-clad protesters swarmed the airport Monday, causing the biggest disruption yet to the city since the unrest began in June, after a weekend of violence that saw police fire tear gas into a subway station and rubber bullets at close range. The Hang Seng China Enterprises Index of Chinese firms has lost more than 16% since its April high, not far from entering a technical bear market. The MSCI Hong Kong Index has fallen nearly 15% since a recent peak on July 19 and on Tuesday was poised to erase this year’s gain.

a screenshot of a video game: Hong Kong stocks decouple from U.S. as protests intensify© Bloomberg Hong Kong stocks decouple from U.S. as protests intensify

Hong Kong’s next crisis may be economic as protest fallout grows

The threat from the trade war and weeks of local unrest is already showing in the property market, as well as tourist numbers, hotel occupancy and retail sales. A weak yuan is another cause for concern, as it will damp spending from mainland visitors and pressure earnings for firms that rely on China. Profits for members of the Hang Seng Index are forecast to drop the most since the global financial crisis this year, data compiled by Bloomberg show.

“It looks like the situation will get worse,” said Airy Lau, investment director at Fair Capital Management Ltd. “Together with the higher global recession risk from U.S.-China friction, the Hang Seng Index is likely to have 5-10% more downside.”

Mainland investors have made the most of the slump in Hong Kong-listed equities, purchasing $4 billion of stocks through exchange links for 18 straight days. They bought a net $309 million worth of the city’s shares on Tuesday.

(An earlier version of this story corrected the direction of Swire Properties’ share price movement.)

--With assistance from Jeanny Yu.

To contact the reporters on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net;Ken Wang in Beijing at ywang1690@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, David Watkins, Magdalene Fung

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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