Hong Kong, China markets decline as risk-off sentiment returns amid rising Middle East tensions

China and Hong Kong stocks fell on Wednesday, with the Hang Seng Index sinking most in five weeks, as geopolitical tensions flared up again after Iran launched missiles against US airbases in Iraq.

The Shanghai Composite Index dropped 1.2 per cent, or 38.91 points, to 3,066.89 at the close on Wednesday. The Hang Seng Index lost 0.8 per cent to 28,087.92, posting its biggest loss since December 4.

Gold futures rose for an 11th consecutive day and crude oil contracts traded close to a seven-month high after Iran launched more than a dozen missiles against US military forces in Iraq, in retaliation for the killing of a top military general in a drone attack last week. As caution prevailed and a risk-averse mode returned, major stock markets in Asia all headed south, following cues from a sell-off in US equities in overnight trading.

“Global Equities are being hit, and the need for defensive strategies is paramount,” said Stephen Innes, strategist at AxiTrader. “There is no denying the enormity of long-term geopolitical repercussions of the latest events as oil, bond and gold defensive strategy flows are providing the lead-in for local cash.”

Traders will also be keeping a close eye on China’s inflation number, which is expected to be released on Thursday morning. Inflation might have accelerated to an eight-year high of 4.7 per cent in December, while factory-gate prices continued to drop, according to estimates by analysts surveyed by Bloomberg.

Brokerage, technology and agricultural stocks topped the list of worst performers on the mainland. Nanjing Securities fell 4.9 per cent to 12.55 yuan and Hongta Securities declined 4.8 per cent to 15.85 yuan. Hubei Century Network Technology dropped 6.4 per cent to 16.54 yuan and Yuan Longping High-tech Agriculture plunged by 9.9 per cent to 18.16 yuan.