Hong Kong stocks extend losses as Ukraine war feeds recession risks while city lockdown, tech crackdown concerns linger

Sell-off on Hong Kong stocks deepened as Tencent and NetEase slid after China’s political delegates proposed tightening control over the gaming industry
Hang Seng Index members traded at the widest discount to book value in at least a decade; Alibaba bucked the sell-off with a rebound from record low

China stock market

Zhang Shidongin Shanghai

Published: 10:37am, 8 Mar 2022

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Hong Kong stocks fell from a five-year low on concerns the Russia-Ukraine war will drag the global economy into a recession. Investors fretted about a lockdown in the city as markets regulator called for businesses to ensure continuity.

The Hang Seng Index lost 1.4 per cent to 20,765.87 at the close of Tuesday trading. The index slumped 3.9 per cent on Monday to the lowest since July 2016. The Tech Index weakened 3.2 per cent while the Shanghai Composite Index slid 2.4 per cent. Key markets in Asia-Pacific also retreated, following overnight losses in US equities.

More than half of the 66 Hang Seng Index members retreated, as BYD, Country Garden Services and China Resources Beer slumped more than 8 per cent. Game developers Tencent fell 1.2 per cent and NetEase lost 2.3 per cent after delegates at China’s annual legislative meeting proposed to further tighten its grip on the industry.

Bucking the overall weakness, Alibaba Group Holding, the owner of this newspaper, recovered from its all-time low with a 0.9 per cent advance to HK$96.90.

Investors are reassessing the risks of runaway inflation and recession as prices of commodities and grains from nickel to wheat hit record highs. Crude traded above US$120 a barrel, the highest since 2008, while Russia threatened to disrupt gas supply in Europe.

“The Russia-Ukraine conflict is unleashing a stagflationary impulse on the global economy,” Chen Zhao, chief global strategist at Montreal-based Alpine Macro said in a report. “This could be followed by a recession as oil prices soar and central banks tighten policy.”

Energy crises have often been the key conduit through which wars impact the global economy and financial markets. Source: Alpine Macro

The spectre of citywide lockdown appears to unsettle trading and business continuity. Hong Kong reported more than 20,000 new Covid-19 cases on Monday, after a week of over 50,000 infections. The stock exchange operator pledges to keep markets fully functioning “whatever the prevailing environment.”

Hong Kong’s market slipped into bear-market territory in September, while the Shanghai Composite has remained about a tenth away from losing at least 20 per cent from a recent peak.

Locals stocks failed to sustain an early rebound, despite a technical indicator showing the rout in stocks was excessive. The Hang Seng Index’s 14-day relative strength index fell to 23 on Monday, below the 30 threshold that traders rely on as an oversold condition.

The index members currently trade at 14 per cent below their book value, the widest discount in at least a decade, according to Bloomberg data.

‘Two sessions’ 2022: China’s video game crackdown shows no signs of easing

Yuan-denominated stocks also failed to recover, despite being touted as a better shield for investors fleeing from global risk-off sentiment, according to BCA Research. Policymakers have ample room to stimulate the economy, it argues in a report on March 2.

Liquor distiller Kweichow Moutai gained 2.7 per cent in Shanghai after saying profits for the first two months increased about 20 per cent from a year earlier.