Stocks in China are under pressure in afternoon trade, with the Shanghai Composite index down by 1.5% coming out of the lunch break:
Hong Kong’s Hang Seng index is doing no better, a short time ago down by 1.49%. Larger stocks were copping the brunt of it in China with the Shanghai SE50 — comprised of the 50 biggest companies by market capitalisation — down by 2.13%.
Conversely, the tech-focused ChiNext index edged higher by 0.27%.
Markets in China and Hong Kong are noticeably lagging their main regional counterparts, with stocks in Australia and Japan both in positive territory.
According to DailyFX senior strategist Ilya Spivak, today’s selloff has been driven by investor nervousness around weakness in the Hong Kong dollar (HKD).
Hong Kong authorities stepped in last week and purchased more than $US1 billion worth of US dollars to buy HKD, in order to prop up the currency after it fell to the bottom of its trading band against the greenback.
“The Hong Kong Monetary Authority’s (HKMA) efforts to buy HKD and send it higher have fallen flat so far despite a spirited effort, which suggests the pace of purchases may be accelerated,” Spivak told Business Insider.
“That is no less a form of accelerated monetary tightening than a round of steep interest rate hikes for central banks that use overnight rates as their main policy lever versus the exchange rate, so it is no wonder that stocks aren’t taking kindly to it,” Spivak said.
The move has coincided with rising inter-bank lending rates in Hong Kong, as the one-month interbank lending rate climbed back to 1% today, from 0.85% on Friday.
“China also hiked its 14-day inter-bank lending rate, adding to the overall sense that credit conditions are tightening,” Spivak said.
The Shanghai Composite index is now on track for its third straight day of falls, after drifting lower at the end of last week even as trade tensions between the US and China appeared to ease somewhat.
Instead, the uncertainty faced by Asian markets at the start of trade this week stemmed largely from the US-led strikes on Syria over the weekend, amid escalating tensions in the Middle East.
But the ASX200 has been resilient following a weak lead from US stocks on Friday night.
A short time ago, the local index was up by 0.25%, with most of the major banks edging higher as the ongoing banking Royal Commission turns its focus towards dodgy financial planners.