Hong Kong stocks fell 1.36 percent on Friday as investors worried that spending cuts in Europe could stifle the global economic recovery and slash profits for local firms such as fashion retailer Esprit Holdings. Shares in Shanghai also slipped, with the Composite Index losing 0.5 percent on global market weakness and persistent fears that Chinese authorities will announce further policy tightening measures.
Shanghai is among the worst performing equity markets in the world so far this year along with debt-laden Greece and Spain. "The overhang on policy risk in China as well as concerns over the economic situation in Europe will remain a major overhang for the China equities in the short term," said Christina Chung, senior portfolio manager at RCM Asia Pacific.
Hong Kong's benchmark Hang Seng Index ended down 277.03 points at 20,145.43, its lowest close in a week. The China Enterprise Index of top locally listed mainland Chinese stocks fell 1.2 percent. Hong Kong trading volume reached HK$67.2 billion ($8.64 billion), the highest in three days, but investors remain cautious amid a host of negative local and global factors. Shanghai and Hong Kong are Asia's worst performing markets so far in 2010, with the former slumping 18 percent, on incessant fears that Beijing may resort to more aggressive monetary policy tightening to keep the economy from overheating.
The Hang Seng has lost nearly 8 percent so far this year. By comparison, Greece's ATG has plunged 23 percent and Spain's IBEX more than 16 percent as worries about their high debt levels escalated. For the week, the Hang Seng gained about 1.1 percent, while the Shanghai index rose about 0.3 percent, largely as a result of big gains on Monday following the announcement of a $1 trillion rescue package by the European Union and IMF to stave off a sovereign debt crisis in the euro zone.
Shares of Europe-focused Esprit Holdings fell 6.5 percent to their lowest close in more than four months after UBS said in a report on Friday that weaker demand in Europe would hurt the company's sales. Banks and property stocks were the biggest fallers, with Shanghai's property sub-index down 1.8 percent. Minsheng Bank fell 0.9 percent, ICBC dropped 1.1 percent, China Construction Bank fell 0.6 percent, while Merchants Bank was down 1.2 percent. All banks were on the most actively traded list.
Turnover in Shanghai A shares fell to 82 billion yuan ($12 billion) from Thursday's 90 billion yuan. Ping An Insurance fell 2.2 percent after a term sheet obtained by Reuters showed Newbridge Asia, a unit of buyout fund TPG, was selling part of its stake in the company for up to $1.26 billion.
The Shanghai index's 14-day relative strength index was at 30 points, a level that indicates the threshold for whether a market has become oversold. Earlier in the week the index fell to a record low of 19, a level not seen since the Lehman Brothers crisis in late 2008.
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