HK market plunge raises China fears

A man walks past an electronic billboard displaying the Hang Seng Index numbers in Hong Kong, China, on Feb 11, 2016. PHOTO: EPA

Hong Kong shares plunged 3.9 per cent on the first trading day after the Chinese New Year break as investors rushed to catch up with the regional markets.

The bloodshed has only racked up the tension ahead of what might happen when Chinese markets reopen next Monday, as traders often use the Hong Kong market as a proxy for mainland shares. The mayhem yesterday will not help calm nerves.

With the Tokyo market closed for a national holiday after having fallen sharply on Tuesday and Wednesday and the Shanghai market still closed, investors in Singapore and Hong Kong led the rush to the exits.

Singapore shares fell to a three- week low amid a continued regional sell-off.The benchmark Straits Times Index dropped 43.82 points, or 1.7 per cent, to 2,538.28 and is now down close to 12 per cent since the start of the year.

The Hang Seng China Enterprises Index, a gauge of mainland Chinese stocks listed in Hong Kong, plunged 4.9 per cent.

The dark cloud over the region set in yesterday morning as crude oil futures declined 3 per cent to below US$27 a barrel, near a 12-year low.

There was little respite to be found elsewhere. The euro zone's finance ministers met yesterday to review Greece's performance since receiving a bailout deal last year.

Concerns about the health of the euro zone banking sector are mounting and doubts are creeping in over whether Greece and Portugal can abide by the requirements of their bailout deals.

Meanwhile, US Federal Reserve chair Janet Yellen's comment that financial conditions in the country "have recently become less supportive of growth" has sent fresh waves of worry throughout global markets.

Rabobank European strategist Emile Cardon told Reuters: "What is different from previous times is that the bad news is now coming from everywhere - China, Portugal, the US, the commodity sector, the banking sector. It's like several smaller crises could combine into one big crisis."

Amid all the worries, traditional safe havens have turned out the winners - the Japanese yen, gold and top-rated bonds shot up yesterday.

Gold rallied above US$1,200 an ounce and has surged 14 per cent this year, while the yen climbed to its strongest level in 15 months against other major currencies.

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A version of this article appeared in the print edition of The Straits Times on February 12, 2016, with the headline HK market plunge raises China fears. Subscribe