Hong Kong shares slid 5 percent on Wednesday in anaemic turnover as investors locked in gains on a two-day, 14 percent rally amid worries about a slowdown in the global economy and its impact on corporate profits. Resources stocks were walloped by lower commodity prices, while shippers sank, tracking the hefty 8.5 percent overnight drop on the global freight index.
But China Eastern Airlines avoided the downdraft, climbing 5.4 percent on mainland media reports that the airline's proposed merger with smaller rival Shanghai Airlines had been approved in principle by the Shanghai government. "The rebound is over and the risk of recession as high as ever," said Patrick Shum, strategist with Karl Thomson Securities.
"Governments across the world are cutting welfare spending and issuing more debt to help the financial system. But these measures will create a bigger problem of an economic slowdown." Governments around the world have pledged roughly $3.2 trillion in schemes that guarantee bank deposits, interbank lending and the purchase of new securities to shore up bank capital.
The benchmark Hang Seng Index closed down 834.58 points at 15,998.30. The index has dropped 42 percent so far this year. Mainboard turnover fell to HK$52.2 billion ($6.7 billion) from HK$81.7 billion on Tuesday. The China Enterprises Index of top locally listed mainland Chinese companies slid 6.4 percent to 7,894.06.
Shares in Ping An Insurance tumbled 7.4 percent after Fortis, in which the Chinese insurer owns a 5 percent stake, was carved up, sending its shares plunging 78 percent after a long suspension. The Belgian-Dutch financial group was broken up along national lines this month as governments and investors feared for its viability in the shadow of the liquidity crunch. Other Chinese financials slid as investors locked in gains on the steep two-day rally in mainland banks and insurers.
Top bank ICBC fell 5.9 percent while No 2 lender China Construction Bank shrank 6.7 percent. Offshore oil specialist CNOOC dropped 6.3 percent, pulling back from Tuesday's 13.8 percent rally after crude oil prices fell below $80 per barrel, a level critical to market bulls. Asia's largest oil and gas producer, PetroChina, fell 6.5 percent.
Shipping stocks were battered by an 8.5 percent slide in the Baltic Dry freight index overnight on deepening concern over a protracted slowdown in demand for commodities amid a global recession. Shares in China's largest shipping conglomerate, China Cosco, plunged 10.5 percent while oil and coal carrier China Shipping Development dropped 13.6 percent.
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