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Equities

Hong Kong market closes lower on worries about Italy and trade

Tencent, Country Garden and banks lead declines

HONG KONG (Nikkei Markets) -- Hong Kong shares slid to a fresh three-week low on Wednesday as political uncertainty in Italy sparked a flight to safety across the globe. Local sentiment was also hurt by word that the U.S. will move ahead with some proposed tariffs on imports from China.

The Hang Seng Index dropped 1.4% to 30,056.79, with 47 of its 50 constituents ending lower. Internet services major Tencent Holdings retreated 1.7% and China Construction Bank (CCB) gave up 2%. The two were the biggest contributors to the index's losses by points.

London-headquartered lender HSBC Holdings dropped 1.3% and CK Hutchison Holdings, which generates a large portion of its revenue from Europe, slid 1.1%.

Agricultural Bank of China (ABC) fell 1.7%. The lender said the China Securities Regulatory Commission had approved its application for a 100 billion yuan ($15.7 billion) private placement of its domestically listed shares.

Political turmoil in Italy kept investors on edge after Carlo Cottarelli, nominated by the country's president to serve as a caretaker prime minister, reportedly failed to secure support from major political parties. Demand on Tuesday for safe-haven assets fueled by worries about Italy's future ties to the EU pushed the yield on U.S. Treasurys down to levels not seen since early April.

"The Italian political struggle does pressure the Hong Kong market," said Andy Kwan, director of ACE Centre for Business and Economic Research in Hong Kong. "Soaring Italian bond yields also reflect investor worries over the market, but I think investors should not worry too much. We can see capital flowing into the U.S. bond market; this will flow out when market sentiment calms down."

In Wednesday trading, Italy's benchmark FTSE MIB index was up 0.5% while the yield on the nation's two-year government bonds, which had nearly tripled to 2.43% on Tuesday, slid back under 2%. The Euro Stoxx 50 Index was 0.3% lower on Wednesday.

In Asia, the Nikkei Asia300 Index of regional stocks outside Japan slumped 1.6%. Mainland Chinese stocks suffered heavy losses, with the Shanghai Composite Index slumping 2.5% and the ChiNext index of small-capital shares in Shenzhen declining 2.7%.

On Tuesday, the Trump administration said it would announce a final list of $50 billion worth of Chinese imports that will begin to carry a 25% tariff. The Chinese commerce ministry said the country would take steps to protect its interests.

"The extent of U.S. tariffs is as we expected and even with one-to-one retaliation from China, the short-term economic impact in China, the U.S. and elsewhere is likely to be modest," wrote Louis Kuijs, head of Asia economics at Oxford Economics, in a new report. "But in the midst of seemingly fruitful negotiations to increase Chinese imports from the U.S., the U.S. measures underscore that economic tension and rivalry between the world's two largest economies is on the rise."

Investors are also bracing for MSCI's inclusion of mainland-listed shares in its regional and global indexes on June 1, a move that is expected to boost inflows into Chinese equities.

In Hong Kong on Wednesday, Country Garden Holdings dropped 2.1% amid broad market losses. The property developer on Tuesday said its board had approved the spin-off and listing of Country Garden Services Holdings shares on Hong Kong's main board. One CG Services share will be distributed for every 8.7 shares a stockholder owns in the company.

Hong Kong apparel retailer I.T sank 3.2%, trimming month-to-date gains to about 26%. On Tuesday, the company reported a 37.1% jump in net profit for the year ended Feb. 28 and a 4.8% increase in revenue.

Restaurant operator LH Group defied the market's dour mood. Its shares closed their first day of trading at HK$1.54, up from the HK$1.10 pricing of its 220 million Hong Kong dollar ($28 million) initial public offering.

SOCAM Development slid 2.5% to HK$2.33 after saying it plans to buy back up to 100 million shares, or 20.64% of its issued capital, at HK$2.50 apiece.

FDG Electric Vehicles lost 6%. Chairman Cao Zhong said some shares he had put up as collateral for margin financing had been sold without prior notice due to a fall in his company's share price. The stock is down 51.5% since the beginning of the year. Cao now has an 11.23% stake in the company, down from 11.86% previously.

-- Carrie Chen

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