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Nikkei Markets

Hong Kong shares slide amid trade worries, city unrest

Property shares drop as local interbank rates surge

HONG KONG (Nikkei Markets) -- Hong Kong shares fell for the first time in five days on Wednesday, weighed down by losses for Chinese companies amid mounting concerns over Sino-American trade tensions while protests in the city affect trading activity.

The Hang Seng Index fell 1.7% to 27,308.46 after rising 3.8% over the past four trading days. Turnover on the main board was at 76.99 billion Hong Kong dollars ($9.84 billion), lower than usual.

Social media and gaming major Tencent Holdings declined 2.1%, while financial heavyweights AIA Group and HSBC Holdings shed 2.6% and 1.2%, respectively.

Sunny Optical Technology Group fell 6.1%. The smartphone component maker on Tuesday reported a 38.7% increase in May shipment volumes for handset lens sets. Goldman Sachs said gross margins were likely to be weighed amid rising competition and higher demand for low-end lenses. AAC Technologies Holdings, also a supplier to smartphone makers, declined 3.4%.

The Hang Seng Index led losses in the region, as thousands of demonstrators occupied streets near the Hong Kong government's offices on Wednesday. They were protesting against a controversial bill that would allow people to be extradited to China. The Legislative Council's debate scheduled for 11 a.m. on Wednesday was delayed because of the protests.

Hong Kong's commissioner of police later confirmed the usage of rubber bullets, and described the clashes with protestors as riot.

The U.S. on Tuesday expressed "grave concern" over the extradition bill, and said it puts the city's special status at risk.

The U.S. threat of revoking Hong Kong's special status is having a "psychological effect" on equities today, said Eddie Tam, chief investment officer at Central Asset Investments. "Yet, earnings impact is limited, because there are very few big companies doing U.S.-Hong Kong trade exclusively."

The U.S. grants Hong Kong a special status, allowing the city to be treated as a nonsovereign entity separate from China for trade and economic matters under U.S. law.

Kenny Wen, a wealth management strategist at Everbright Sun Hung Kai, said the impact was "quite hard to quantify" at present.e

Meanwhile, the Hong Kong dollar rose 0.2% against the greenback to 7.8239, its highest level since December. The currency is pegged to the U.S. dollar in a range of 7.75 to 7.85.

Interbank interest rates in the city rose, sending the HIBOR with a one-month tenor to 2.42286%, its highest level in more than a decade. The Hang Seng Property Index, a gauge of large developers listed in the city, slid 2.8%. Sun Hung Kai Properties declined 3.1%, while New World Development dropped 4.8%.

Meanwhile, trade tensions between the U.S. and China also played on sentiment. U.S. Commerce Secretary Wilbur Ross on Tuesday said U.S. President Donald Trump and China's Xi Jinping will not strike a "definitive deal" on trade at a meeting expected at the upcoming Group of 20 summit in Japan this month. His comments come a day after Trump said he would impose more tariffs on Chinese goods if a meeting between the two presidents does not take place at the summit.

"The messages are a bit confusing," Everbright Sun Hung Kai's Wen said. "But it seems both sides are still in a standoff, and the market does not have hopes at all for a trade deal at the end of the month."

In the mainland, the Shanghai Composite Index declined 0.6%, while the yuan traded onshore declined 0.1% to 6.92 against the dollar.

Standard Chartered fell 2.6% in Hong Kong. The lender on Wednesday said it had temporarily suspended operations at two branches in Hong Kong's Admiralty district due to severe traffic disruption in the area.

Mainland developer China Resources Land slipped 1.6% even as it reported a 36.3% increase in contracted sales for May.

Railway construction-related products maker Hebei Yichen Industrial Group slumped 12.5% despite reporting a 2.3% increase in net profit for the year ended Dec. 31.

-- Amy Lam

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