Hong Kong, China stocks tumble on heightened Sino-US tension and rout in market darlings

Hong Kong and Chinese stocks slumped as concerns mounted about growing tension between Beijing and Washington and traders unwound bets on some of the shares with the biggest gains this year.

The Hang Seng Index sank 2 per cent, or 547.24 points, to 26,346.49 at the close on Friday, capping a 2.1 per cent loss for the month. The mainland’s Shanghai Composite Index shed 0.6 per cent to 2,871.98, finishing at the lowest level since August 26.

While some traders were left bewildered by what had triggered the pullback in stocks for the day, KGI Securities said the markets were probably reassessing the repercussions of the signing by US President Donald Trump of legislation supporting the anti-government protesters in the former British colony.

“After the initial assessment, the market has probably figured out that the impact of the bill would be far-reaching in the fronts of both the economy and politics,” said Chen Hao, a strategist at KGI in Shanghai. “A trade deal has now become a wild card. Alongside with weak economic data, the only direction the market can choose now is to resume declines.”

Adding to fragile sentiment was the shake-out in some of the best-performing stocks on the mainland’s exchanges. The group of companies from liquor distillers and pig breeders to consumer electronics makers bore the brunt of the sell-off, as institutional investors rushed to cash out and lock in profits.

Drug makers also fell in the two markets after the result of negotiations between the government and pharmaceuticals showed more than 50 per cent drops in prices of the medicines that will join the national medical insurance coverage.

CSPC Pharmaceutical Group and Sino Biopharmaceutical were the biggest decliners on the Hang Seng Index, while a gauge tracking mainland-traded health care companies sank 1.8 per cent as the second-worst performing sector.

CSPC Pharmaceutical Group plunged 9.7 per cent to HK$17.82 on expectation that its Keaili breast cancer drug will undergo government bulk procurement price negotiations in the first half of next year.

Sino Biopharmaceutical, whose Tomudex drug for late-stage colon cancer was on the list of joining the national medical insurance with a 55 per cent price cut, fell 4.9 per cent to HK$10.10.

Chow Tai Fook Jewellery Group rallied 7.9 per cent to HK$7.35. Daiwa Capital Markets reiterated its buy rating on the jewellery retailer, saying a 21 per cent drop in first-half profit was mainly due to unrealised losses from mark-to-market revaluation of its gold loans and in line with an earlier profit warning.

In the mainland, Kweichow Moutai led the year’s market darlings lower in what analysts called a “stampede,” referring to the practice that fund managers forestall each other by selling their biggest holdings earlier particularly by the year end for better spots in the performance rankings.

Kweichow Moutai, the world’s most valuable fiery liquor producer retreated 4 per cent to 1,129 yuan, the biggest loss in two months, after the stock surged as much as 109 per cent this year.

Pig-farming Muyuan Foodstuff tumbled 4.1 per cent to 86.80 yuan and Jiangsu Hengrui Medicine lost 4.2 per cent to 85.90 yuan. The two stocks had jumped at least by as much as 118 per cent in 2019.