Hong Kong and China stocks deepen losses after across the board sell-off on Federal Reserve stimulus warning

Hong Kong and China stocks slumped, taking cues from a sell-off in US equities, amid fears that policymakers are not doing enough to further power economic recovery and a resurgence of the coronavirus pandemic will derail growth. The mainland’s markets also fell on concern authorities will stiffen penalties against financial crimes.

The Hang Seng Index lost 1.8 per cent, or 431.44 points, to 23,311.07, for the lowest close since May 29 on Thursday. The mainland’s Shanghai Composite Index declined 1.7 per cent to 3,223.18, the lowest in two months.

Other major markets in Asia also fell, with South Korea’s Kospi index tumbling 2.6 per cent to make it the region’s worst performer. The S&P 500 slumped to an eight-week low in overnight trading, extending its loss to 10 per cent from a recent high. A 10 per cent drop is typically seen by some technical traders as entering a correction. Other asset classes from crude oil to gold all slipped, while investors snapped up the US dollar as a haven, setting a gauge of the American currency on course for its biggest monthly gain since April.

While Federal Reserve chairman Jerome Powell said earlier that the world’s largest economy has a long way before fully recovering and requires more support, the chance of a new fiscal stimulus seems to be fading before a contentious presidential election. Meanwhile, a recent increase in rising cases of Covid-19 in the US and other nations added to the weak sentiment, with some European countries imposing more social distancing measures.

“Fading prospects for US fiscal stimulus and the stepping up of mobility restrictions on concerns about the second wave of Covid-19 are smacking global stock markets again,” said Stephen Innes, a strategist at AxiCorp. “Risk market losses, especially US equity losses, signal that all the possible juice that can be extracted from declining real rates has already been squeezed.”