Asian stocks dropped, led by a rout in Hong Kong, after clashes between police and pro-democracy protesters in the Chinese city. The dollar extended gains and the cost of insuring debt against default jumped after United States economic data bolstered the outlook for higher interest rates.
The Hang Seng Index lost 2.3% by 11.22am in Tokyo, erasing its gain for the year and dragging the MSCI Asia Pacific Index to a 0.7% decline. The Hong Kong dollar and Chinese yuan weakened as the Bloomberg Dollar Spot Index added 0.1%, climbing a seventh day. New Zealand's currency fell to a one-year low. Oil in New York slipped 0.6%. Standard & Poor’s 500 Index futures fell 0.2%. A gauge of Asian credit-default prices rose to a one-month high.
Demonstrators disperse as tear gas is fired by police during a protest near central government offices in Hong Kong on Sunday. — Bloomberg
Hong Kong shares tumbled as police used tear gas to try and disperse protestors ahead of national holidays this week that will close the city’s markets on Oct 1 and Oct 2, and see mainland Chinese venues close for five days from Wednesday. The US economy grew at the fastest pace since 2011 in the second quarter, fueling speculation over Federal Reserve rate increases. Pacific Investment Management Co, whose co-founder Bill Gross departed last week, said it sees slower growth in China and downside risks in Australia.
"It's going to spook some investors who are worried that this could drag out, affecting the business climate in Hong Kong," Vasu Menon, vice president of wealth management at Oversea-Chinese Banking Corp, said on Bloomberg TV from Singapore. "It's happening at a time when the US Federal Reserve is talking about tightening monetary policy, a time when China is slowing down. So now you have a third layer of uncertainty weighing on the Hong Kong stock market and it’s something investors could do without at this stage."
Complete retreat
All 50 stocks on the Hang Seng Index dropped at least 0.9% Monday, while a gauge of Chinese shares in the city retreated 2.1% in a third day of decline. Profits at industrial companies in China declined last month for the first time in two years, data at the weekend showed, as a slowdown in the world's second-largest economy deepens.
The Shanghai Composite Index pared a gain of as much as 0.7%. The Hang Seng China AH Premium index, which measures the weighted-average price difference between dual-listed shares in the mainland versus Hong Kong, rose through the 100-level that shows the gap being erased.
The Hong Kong dollar, which is allowed to trade within a tight band versus the US currency, slipped for a sixth day and is at its weakest level since March. The city’s one-year interest-rate swap went up three basis points, the most in 15 months, to 0.485%.
China’s yuan slipped 0.1% to 6.1350 per dollar in onshore trade and retreated as much as 0.3% outside the mainland.
The kiwi plunged as much as 1.5% to 77.49 US cents, the lowest level since Sept 2 last year. New Zealand’s central bank said it sold a net NZ$521 million in August, the most since July 2007. Prime Minister John Key said the so-called Goldilocks level for the country's currency is around 65 US cents, Interest.co reports, citing comments to reporters.