Hong Kong blue chips sank 4 percent on Monday - their biggest one-day percentage drop since late 2003 - amid a global sell-off spurred by concerns about the US economy and as a stronger yen suggested that carry trades may be unravelling.
Hong Kong-listed shares in mainland companies hit their lowest level in nearly 14 weeks before closing down 5.1 percent in their seventh-straight losing session. Mainland insurers and lenders led the decline as investors fled emerging markets amid waning risk appetite. The day's decline was the worst one-day percentage drop for H shares since May 22.
"The overriding concern is the yen currency and whether it will trigger further unwinding of carry trades," said Ben Kwong, chief operating officer at KGI Asia, referring to the practice of borrowing in yen or other low-yielding currencies then using the proceeds to invest in higher-yielding assets. The benchmark Hang Seng Index ended near the day's bottom of 18,659.23, its lowest since December 13. It closed down 777.13 points to end at 18,664.88.
The China Enterprises index of H-shares, or Hong Kong-listed shares in mainland companies, shed 457.45 points, earlier hitting its lowest level since November 29. The index is now down 17.5 percent for the year, versus a 6.5 percent loss for the Hang Seng Index.
"The downside for the H shares from here is another 7 to 8 percent," said Tat Auyeung, fund manager at Apex Capital Management. "We will be affected by external factors in the short-term," Auyeung added, citing worries about the US economy and the trouble in its subprime mortgage market. Turnover was HK$72.4 billion (US $9.3 billion), the fifth-highest ever. Components of the Hang Seng and H-share indexes all fell.
Mainland financials were among the top losers, with China Life plummeting nearly 4 percent to end at HK$19.26. Top mainland lender Industrial & Commercial Bank of China sank 4.8 percent to HK$3.99 and China Construction Bank tumbled nearly 5 percent to HK$4.04. Among heavily traded resource stocks, Sinopec Corp shares plunged 6 percent, closing at HK$5.67 and PetroChina Co Ltd skidded 4.1 percent to HK$8.63.
HSBC dropped 2.5 percent to HK$133.0. It said after the market's close that 2006 profits rose 5 percent as Europe's biggest bank took a $10.6 billion hit for bad debts after problems in its US mortgage lending. China Mobile tanked nearly 6 percent to HK$67.35. Hong Kong Exchanges and Clearing Ltd, in its sixth straight losing session, hit 13-week lows before paring losses to end at HK$69.60 for an 8.5 percent drop.