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Nikkei Markets

Hong Kong shares sink on turmoil in Italy and US tariffs move

LH Group shrugs off market weakness to surge on trading debut

HONG KONG (Nikkei Markets) -- Hong Kong shares tumbled on Wednesday morning as political uncertainty in Italy sparked a flight to safety across the globe, with sentiment also hurt after the U.S. said it was moving ahead with proposed tariffs on imports from China.

The Hang Seng Index was down 1.4% to 30,054.47 by the noon lunch break, with 47 of its 50 constituents trading lower. Social-media and gaming company Tencent Holdings fell 1.3%. China Construction Bank (CCB), insurer AIA Group and Industrial & Commercial Bank of China (ICBC) declined 1.8%, 1.6% and 2%, respectively, also among the biggest contributors to losses on the index.

Restaurant operator LH Group defied the market's mood, jumping 42.7% to HK$1.57 by midday as it began trading in Hong Kong after raising 220 million Hong Kong dollars ($28 million) from an initial public offering.

All three major U.S. equity benchmarks retreated overnight as political turmoil in Italy deepened, after the nation's recently nominated prime minister, Carlo Cottarelli, reportedly failed to secure support from major political parties. The risk of another election as early as July has sparked speculation over the possibility the vote will be a de facto referendum on Italy's role in the European Union. Italy's benchmark equity gauge, the FTSE MIB, lost 2.7% on Tuesday and short-term Italian bond yields surged. Safe-haven demand 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. The soaring Italian bond yields also reflect investor worries over the market, but I think investors should not worry too much," said Andy Kwan, director of ACE Centre for Business and Economic Research in Hong Kong. "There is always a way for the market to take the risk off. We can see capital flowing into the U.S. bond market; this will flow out when market sentiment calms down."

Kwan expects pressure on the local stock market to spill over into the first half of June, with the Hang Seng Index likely to fluctuate between 29,500 and 31,500 points.

The Nikkei Asia300 Index was down 1.6% by midday, while the Shanghai Composite Index and its Shenzhen counterpart had declined 1.8% and 1.9%, respectively. On Tuesday, U.S. President Donald Trump's administration said it will announce a final list of $50 billion in Chinese imports that will carry a 25% tariff. The announcement came after weeks of discussions on import tariffs between the U.S. and China as the two economies seek to reach an agreement on bilateral trade.

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

Apparel retailer I.T tumbled 4% in Hong Kong, trimming month-to-date gains to 25.1%. 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.

Country Garden Holdings dropped 2.5% amid broad market losses. The property developer on Tuesday said its board approved a planned spin-off and listing of Country Garden Services Holdings shares on the city's main board by distributing one CG Services share for every 8.7 shares held in the company.

Agricultural Bank of China fell 1.2%. The lender said the China Securities Regulatory Commission approved its application for the nonpublic issuance of A-shares.

SOCAM Development slid 3.4% to HK$2.31, 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 declined 3.6%. Cao Zhong, the company's chairman said certain shares held by him and deposited with securities firms as collateral for margin financing were sold without prior notice due to a fall in the 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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