Hong Kong’s stocks fall to lowest in three weeks as bond and Italy woes spook investors

Stocks in Hong Kong and mainland China dropped on Tuesday, as investors took shelter against risk assets amid the political uncertainty in Italy and the decline of Chinese property developers led by Country Garden Holdings on concern that tightened liquidity will hurt the highly indebted industry.

The Hang Seng Index fell 1 per cent, or 307.68 points, to 30,484.58 at the close, the lowest level since May 8. The Hang Seng China Enterprises Index, or the H-share gauge, slid 1.3 per cent. The mainland’s benchmark Shanghai Composite Index fell for a fifth day, the longest streak of declines in a year.

Major equity markets in Asia all fell, with Japan’s Nikkei 225 and South Korea’s Kospi index retreating at least 0.6 per cent, as the euro weakened and Italy’s stocks and bonds both headed south after the Mediterranean country is in for fresh elections as the populist parties have failed to form a government since a March poll.

After a 36 per cent gain last year, the momentum on the Hang Seng Index has slowed in 2018. The gauge has been stuck in a 2,000-point range over the past three months, as the city’s stocks are more buffeted by external factors like rising yields on US treasuries and the frayed trade relations between China and the US.

“The risk appetite is falling as investors are worried about a repeat of the Europe debt crisis,” said Chen Hao, a strategist at KGI Securities in Shanghai. “On the backdrop of deleveraging, the market believes that the risk is increasing and that [mainland Chinese] developers will miss the bond payments as it’s an industry with a pretty high debt ratio.”

Country Garden retreated 2.8 per cent to HK$15.50. China Overseas Land & Investment shed 1.5 per cent to HK$26.20 and China Resource Lands fell 1.4 per cent to HK$28.65. China Vanke slumped 2.9 per cent to HK$28.40. Its Shenzhen-traded stock sank 3.4 per cent to 25.60 yuan.