Market Wrap: China-Japan conflicts drags down HK market; Dongfeng plunges

Hong Kong stocks fell, led by Japan-related stocks, on concerns that a tensions between China and Japan over disputed islands are could hurt the world’s second and third biggest economies.

“There may not be a real war, but trade war may be inevitable,” said Liao Qun, senior vice president for strategy & planning, China banking, Citic Bank. “Supply chains in many high-tech and auto industries would be cut off, which could affect production in those companies.”

According to Liao, Japan accounted for 7.8 per cent of China’s total exports while China accounted for 23 per cent of Japan’s total exports in 2011. “Japan’s economy would contract if the tensions drags on into next year,” Liao said.

The benchmark Hang Seng Index lost 56.18 points, or 0.27 per cent, to end at 20,601.93. The Hang Seng China Enterprises Index shed 97.03 points, or 0.99 per cent, to close at 9,683.89.

Japan’s Nikkei 225 Index lost 35.62 points, or 0.39 per cent, to close at 9,123.77. In China, the Shanghai Composite Index lost 18.96 points, or 0.91 per cent, to close at 2,059.54.

Protests took place in dozens of mainland cities, including Guangzhou, Wenzhou and Shanghai on Tuesday, as the country marked the anniversary of a 1931 incident that Japan used as a pretext to invade Manchuria before World War II. Some major Japanese firms have  announced factory shutdowns in China on Monday, including carmakers Toyota and Honda.

Dongfeng Motor Group (0489.HK), which operates a joint venture with Japanese car maker Nissan, lost 5.09 per cent to end at HK$9.13. Guangzhou Automobile (2238.HK), which makes cars with Toyota and Honda, fell 1.83 per cent to end at HK$5.36.

Ajisen (0538.HK), the Chinese-owned restaurant chain operator that sells Japanese noodles, lost 0.80 per cent to finish at HK$4.97. Hop Hing Group (0047.HK), which operates Yoshinoya quick service restaurants on the mainland, shed 4.21 per cent to close at HK$0.46.

“The risks of political transition (in Beijing) and Sino-Japan conflict are still overhanging the market today,” said Chad Kwok, portfolio manager for Guosen Securities HK Financial Holdings, who helps oversee US$400 million.

“We are still quite bullish as the market is very liquidity-driven due to the low (prevailing) interest rates. After removal of short-term risks, there will be a big rally,” he predicted, adding that he is quite bullish on Hong Kong developers and commodity stocks. 

Commodities stocks retreated, especially oil and gold counters, after spot prices fell. Spot gold prices fell for a second day after hitting a six-month high last Friday. Zijin Mining (2899.HK) lost 1 per cent to close at HK$3.02.

Weichai Power (2338.HK), the Chinese car equipment maker, lost 4.47 per cent to close at HK$23.5. The United States on Monday filed a trade complaint at the World Trade Organization, accusing China of giving hundreds of millions of dollars a year in subsidies to its auto parts makers to boost exports.

Facial mask producer Magic Holdings (1633.HK) gained 1.94 per cent to end at HK$2.63, after posting 27.4 per cent increase in net profit for the first half. The facial mask producer projected "long term healthy and sustainable growth", given a relatively low penetration rate of facial masks compared with other skincare products in China.