Hong Kong stocks, undeterred by new security law, rise with Asia

Better-than-expected Chinese manufacturing data drives Asian shares higher, but oil prices fall on oversupply concerns.

    Investors say Hong Kong is likely to remain a key transit hub between mainland China and the rest of the world despite a new security law passed by Beijing [June 29, 2020: Tyrone Siu/Reuters]
    Investors say Hong Kong is likely to remain a key transit hub between mainland China and the rest of the world despite a new security law passed by Beijing [June 29, 2020: Tyrone Siu/Reuters]

    China may have passed a security law on Hong Kong that rights advocates have condemned, while the United States started eliminating the territory's special status, but none of that appears to have dented investor demand for Hong Kong stocks on Tuesday.

    Along with the rest of Asia, Hong Kong's Hang Seng index jumped 1.18 percent even after China's parliament passed controversial national security legislation that Beijing says is necessary to deal with issues of terrorism, subversion and foreign interference in Hong Kong. Critics say the new rules will outlaw dissent and destroy the autonomy and freedoms promised when the territory was returned to China in 1997.

    Earlier, the US said it was halting defence exports and restricting the territory's access to hi-tech products in an attempt to block Beijing from making its move.

    Investors say the new regulations by Beijing will not do much to harm Hong Kong's status as a key financial and trading transit point between mainland China and the rest of the world.

    "The removal of the special status should not have much impact on investment by US companies in Hong Kong unless there is retaliation in terms of sanctions from Mainland China on US entities based in Hong Kong, which is unlikely," Iris Pang, chief economist for Greater China at Dutch bank ING, said in a research note sent to Al Jazeera.

    Hong Kong stocks received a boost along with other Asian markets after data showed China's manufacturing sector grew more than expected in June, a hopeful sign for a global economy still struggling to recover from the sweeping impact of the coronavirus crisis.

    MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.9 percent, while US stock futures, the S&P 500 e-minis, advanced 0.23 percent.

    Sentiment in the region, which got a boost from overnight gains on Wall Street thanks to strong housing data, got a further lift from a survey in China showing a quickening in activity in its vast factory sector.

    The stock market in Australia, which has crucial economic links with China, rose 1.59 percent, while shares in China gained 0.72 percent.

    The Nikkei rose 2 percent, shrugging off a larger-than-expected decline in Japanese industrial production.

    Overall, however, Asian shares are still on course for a 7 percent decline over the first half of this year, underscoring the severity of the pandemic-sparked losses and the challenges facing investors as global infections continue to rise in a blow to hopes of a quick recovery.

    "Overnight moves in markets were not large but one does get the distinct impression that markets have got it both ways - with equities rallying on rebounding data and bonds rallying on dismal COVID-19 news," said ANZ Research analyst Rahul Khare.

    Indeed, for the second quarter, shares of Asian firms outside Japan were on course for a 17.8 percent gain, which would be the biggest quarterly increase since the third quarter of 2009. 

    On Monday, the Dow Jones Industrial Average rose 2.32 percent, the S&P 500 gained 1.47 percent, and the Nasdaq Composite added 1.2 percent.

    China's factories pick up steam, slowly

    China's official purchasing managers' index (PMI), released on Tuesday, showed that factory activity in the world's second-largest economy grew for a fourth straight month in June. China's services sector PMI also expanded at a faster pace compared with the previous month.

    "The latest survey data suggest that economic growth accelerated in June thanks to a faster recovery in manufacturing and services, alongside continued strength in construction activity," Julian Evans-Pritchard, senior China economist at research firm Capital Economics, said in a research note sent to Al Jazeera.

    "The recovery should remain robust in the coming months as strong infrastructure spending offsets external weakness," he added.

    China June 2020 PMI chart [Bloomberg]
    Overseas demand for Chinese goods is expanding, but at a slow pace, according to the latest purchasing managers' index data [Bloomberg]

    But a recent resurgence in coronavirus infections had led some investors to question the strength of a rebound in global economic activity.

    US crude oil futures fell 0.48 percent to $39.51 a barrel, while Brent crude slipped 0.31 percent to $41.58 per barrel, weighed by concerns about oversupply after Libya cited progress in resuming oil exports while global demand for oil remains weak.

    The swing in sentiment between hopes and fears has kept markets on edge.

    The yield on benchmark 10-year US Treasury notes was little changed at 0.6348 percent in Asia as traders braced for US non-farm payrolls data on Thursday, which is forecast to show an improving labour market.

    US Federal Reserve Chairman Jerome Powell said on Monday that the outlook for the world's biggest economy is "extraordinarily uncertain" and signalled more monetary stimulus might be necessary, which could limit gain in yields.

    Confirmed COVID-19 cases worldwide rose past 10 million, and deaths surpassed 500,000 in the past week.

    The bulk of new cases were reported in the US and Latin America, stoking fears that the outbreak could stall economic recoveries just as lockdowns begin to ease.

    In currency markets, the dollar held onto gains against the yen and the Swiss franc as the recent increase in coronavirus infections supported safe-haven demand for the greenback.

    In the onshore Chinese market, the yuan rose slightly to 7.0685 against the dollar.

    SOURCE: Al Jazeera and news agencies