Hong Kong's benchmark index ended on Monday at its lowest level this year, with investors rattled by mass political protests in Taiwan following the island's knife-edge election result.
"Taiwan's crisis is weighing on stock markets across the region," said Peter Lai, a director at DBS Vickers. "There'll be a psychological impact on the Hong Kong stock market but it should be short-lived."
The benchmark Hang Seng Index ended down 1.87 percent, or 239.67 points, at 12,550.91, recouping some losses after shedding as much as 261 points in afternoon trade. The index ended at its lowest level since late December last year.
However, container ship operator Orient Overseas (International) Ltd (OOIL), owned by the family of Hong Kong's Chief Executive Tung Chee-hwa, bucked the market downtrend. It leapt 9.79 percent to HK $25.80 after the firm posted record 2003 earnings.
Traders said investors were also cautious amid a weak Wall Street and ahead of a string of US economic data due this week. Turnover was thin at HK $13.82 billion (US $1.8 billion), compared with a 20-day moving average of HK $17.9 billion.
All but three of the 33 blue chip constituents ended in negative territory.
Blue chip lender BOC Hong Kong (Holdings) Ltd, one of the city's largest property lenders, recouped some mid-morning losses after posting forecast-beating 2003 results. Shares in BOC ended down 0.34 percent to HK $14.65, after falling as much as 1.36 percent by midday.
The bank, a local unit of the Bank of China, reported a net profit of HK $7.96 billion for 2003. Telecom-to-ports conglomerate Hutchison Whampoa Ltd was the biggest loser, sliding 3.9 percent to HK $55.50.
Newly-listed Semiconductor Manufacturing Corp Ltd tumbled 9.68 percent to HK $2.10. Brokers said it was looking pricey after its Taiwan-listed peers such as Taiwan Semiconductor Manufacturing Co fell the seven percent daily limit.
But defensive play, power provider CLP Holdings, drew buying. Shares in CLP edged up 0.24 percent to HK $41.70.
Incumbent Chen Shui-bian won Taiwan's presidential election by the thinnest of margins on Saturday, a day after he was shot and wounded.
The narrowness of the victory created the island's worst political crisis in years as Nationalist Party leader Lian Chan demanded the election be declared invalid and requested a recount. Protestors took to the streets.
But a referendum on Taiwan's tie with China was rejected by voters, making it invalid. The referendum asked voters if the government should increase defence spending if China refused to withdraw missiles aimed at the island.
"Taiwan will suffer economically and the region will get hit in terms of sentiment each time China flexes its muscles to put Taiwan in its place, something it will be more inclined to do now," said Patrick Choo, a fund manager at Kingsway Unit Trust Managers Ltd.
"As for the impact on HK stocks, the direct effect will probably disappear by Wednesday. We are light now so we'll probably be buying Hong Kong equities tomorrow," Choo added.
After the market close, the government said consumer prices fell two percent in February from a year earlier, deeper than forecasts for a 1.3 percent decline.
The drop was worsened by a decline in prices of package tours after the Lunar New Year holiday at the end of January. Last year, the New Year holiday fell in February.