Hong Kong stocks post biggest loss in three weeks as Biden seen amending China sanctions, adding more targets

Benchmarks in Hong Kong and China dropped as rally lost momentum amid headwinds, while caution prevailed before US non-farm payrolls report
Amendments to US sanctions seen as giving teeth to enforcement after Xiaomi, Luokung challenged order and won in US courts

Hang Seng Index

Zhang Shidongin Shanghai

Published: 11:28am, 3 Jun 2021

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Hong Kong stocks fell by the most in three weeks, stalling a two-month rally amid a report saying President Joe Biden was preparing to amend US sanctions on Chinese companies with ties to the military, including the addition of new targets.

The Hang Seng Index dropped 1.1 per cent to 28,996.03 on Thursday, retreating from a three-month high this week following an almost 3 per cent jump over the past two months. China’s Shanghai Composite Index ended trading with a 0.4 per cent decline.

CNOOC, one of the sanctioned names, slumped 2.6 per cent while Tencent Holdings lost 2.1 per cent. CK Infrastructure and Geely Automobile were also among big index losers, falling at least 2 per cent.

Biden plans to amend a Trump executive order that banned investments in Chinese technology and surveillance companies allegedly owned or controlled by the Chinese military, according to a Bloomberg report.

The move could add more teeth to enforcement by shifting the action from Defence to the Treasury department, as well as potentially target more companies, it added. Xiaomi Corp and Luokung had earlier challenged the order and won in US courts.

“Sino-US tensions are unlikely to ease or increase significantly in the near term,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities in Hong Kong. “The likelihood of a materially tempered relationship is unlikely, considering the bipartisan support in the US for pushing back some of the advancements China has made despite the new US administration.”

Companies linked to aviation and air force will probably be added to the list and the existing ones on the list will be retained, according to brokerages including UOB Kay Hian.

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Sentiment has also remained cautious before the US non-farm payrolls report due on Friday, key data on the strength of the US economic recovery and underlying inflationary pressures. US and global stocks are trading close to their record highs despite headwinds from surging commodity prices and bond yields.

“The potential for a build-up in price pressures is considerable,” said Luca Paolini, chief strategist at Pictet Asset Management. “What worries us more is the possibility of high inflation coinciding with a slowdown in economic and corporate profit growth.”

Major Asia-Pacific markets advanced on Thursday on the back of moderate overnight gains in US stocks, despite some relatively hawkish tones from some Federal Reserve officials. Philadelphia Fed President Patrick Harker said it was appropriate “to slowly, carefully move back” on bond purchases at the appropriate time.

Two debutants made strong starts on mainland trading. Chengdu Shengnuo Biotec, a maker of peptide drugs, surged 266 per cent from its initial public offering price in Shanghai. Pansoft, a developer of enterprise resource planning software, jumped 238 per cent in Shenzhen.