Hong Kong stocks get hammered after China plans new security law

Chinese Premier Li Keqiang says Beijing plans to implement a ‘sound’ legal system to ensure security in Hong Kong.

Activists march against new security laws, near China?s Liaison Office, in Hong Kong
Activists in Hong Kong have protested against proposed new security laws by Beijing sending share prices sharply lower in the semi-autonomous Chinese territory [Tyrone Siu/Reuters]

Hong Kong shares tumbled on Friday after Beijing moved to impose a new security law on the city after last year’s pro-democracy unrest, risking fresh protests and further straining fast-deteriorating ties between the United States and China.

Hong Kong’s Hang Seng index fell more than 4.6 percent to a 10-week low, helping to drag down MSCI’s broadest index of Asia-Pacific shares outside Japan by 1.2 percent.

Japan’s Nikkei slipped 0.25 percent, while South Korea’s Kospi fell 0.7 percent.

Speaking on Friday in his annual report to the Chinese parliament, Premier Li Keqiang said China would establish a “sound” legal system and enforcement mechanisms to ensure national security in Hong Kong and Macau, its other semi-autonomous city.

Li again promised that China would “honour and implement” the “one country, two systems” framework.

Activists in Hong Kong called for marches on Friday to protest against the plan, as the territory faced the possibility of a return to last year’s violent demonstrations against what many there see as Beijing’s attempts to erode their right to freedom of expression.

On Thursday, a Chinese official said China is set to impose new national security legislation on Hong Kong,

That statement drew a warning from US President Donald Trump that Washington would react “very strongly” against the attempt to gain more control over the former British colony.

Earlier this month, the US State Department delayed a report to Congress assessing whether Hong Kong enjoys sufficient autonomy from China to continue receiving special treatment from the US.

“The report could be submitted next month and there is risk the US-China confrontations will intensify towards that,” said Ei Kaku, senior currency strategist at Nomura Securities.

Washington has ramped up criticism of China over the origins of the coronavirus pandemic. Last week, it moved to block global chip supplies to blacklisted telecoms equipment giant Huawei Technologies, while the US Senate passed legislation that could prevent some Chinese companies from listing their shares on US exchanges.

US stock futures erased early gains to stand flat though they were up 3.3 percent so far this week, supported by hopes of economic reopening in many parts of the world as coronavirus lockdowns are relaxed.

Over the worst?

“It is likely that the worst is over in terms of economic activities so if you look at the momentum, economic fundamentals are getting better,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

Major currencies were relatively stable compared with recent weeks.

The euro was unchanged at $1.0945. The yen hardly budged at 107.58 per dollar after the Bank of Japan (BOJ) unveiled its own version of the US Federal Reserve’s “Main Street” lending programme to channel more money to small businesses.

The decision has been widely anticipated after the BOJ said last month it would create such a scheme.

Markets were little fazed by China’s announcement that it would not set an economic growth target this year for the first time in decades and its pledge of more government support for the virus-hit economy at the start of the annual parliament meeting, which had been widely expected.

“The absence of a GDP growth target for this year confirms that, as we expected, policymakers accept that, after the plunge in [the first quarter], economic growth will be low for 2020 as a whole even with a significant sequential recovery in [the second to fourth quarters],” Oxford Economics said in a note to clients.

“The sizeable overall fiscal deficit target indicates significant policy support for the domestic recovery that we expect to continue despite the challenging external background. We expect year-on-year GDP growth to average 4 percent in [the second half].”

The Chinese yuan was steady at 7.1387 per dollar.

Oil prices eased slightly but were headed for a fourth straight week of gains, on more evidence that fuel demand is recovering as countries ease business and social restrictions that were imposed to counter the coronavirus pandemic.

US crude futures ticked down to $33.53 per barrel, down 1.2 percent on the day though they still still retained weekly gains of 13.6 percent.

Source: Reuters