HONG KONG (Nikkei Markets) -- Hong Kong shares dropped to a three-week low on Tuesday with losses accelerating in the afternoon, as concerns about political turmoil in Europe added to worries that MSCI's inclusion of mainland Chinese stocks to its indexes this week might hurt local equities.
The Hang Seng Index ended 1% lower at 30,484.58, as heavyweight stocks came under selling pressure. Insurer AIA Group dropped 2.1% and banking major HSBC Holdings sank 1.2%, while internet-services company Tencent Holdings declined 0.8%. Hang Lung Properties lost 1.5% after a subsidiary made a successful 10.73 billion yuan ($1.68 billion) bid for land-use rights in Hangzhou, China. Guotai Junan Securities said the estimated 4.6% gross rental yield of the project meant the site was fairly priced but added that it was "definitely not cheap."
Losses deepened in the afternoon session as European markets opened sharply lower on Tuesday. Fears that political turbulence in Italy might lead to fresh elections, potentially delivering a mandate in favor of populist parties and threatening the country's membership in the eurozone weighed on risk appetite. In Spain, the government is facing a no-confidence vote later this week.
In midday trading on Tuesday, the Euro Stoxx 50 Index was down 1.8%, while the U.K.'s FTSE 100 had eased 1.4%, while yields on 10-year Italian and Spanish government bonds jumped.
A realization in the last few weeks that coherence in European policies "may again be under threat from Italy's populist tide has triggered a wave of position adjustment, which has reached panic levels in peripheral bonds this morning," analysts at Rabobank wrote in a report. "While Europe is doing its best to dominate market attention, the familiar issues of oil prices, trade wars and the 'will they, won't they' saga of the North Korea-U.S. summit remain in the headlines," they added.
Concerns about Europe have flared up at a time when investors are faced with uncertainty related to the proposed U.S.-North Korea summit, and ahead of the addition of yuan-denominated A-shares into MSCI's global indexes beginning on Friday.
Jason Lee, vice president for stocks at Hong Kong investment consultancy Investment Strategy Institute, said the index had recently lost momentum. "The market has been silent, as MSCI's inclusion of A-shares [on June 1] will put weight dilution pressure on other heavyweights and H-shares," he said.
The Nikkei Asia300 Index fell 0.5% on Tuesday, while the Shanghai Composite Index shed 0.5%.
Alibaba Health Information Technology climbed 3.6% to HK$7.01 in Hong Kong. The company will acquire 100% of Ali JK Medical Products from another unit of billionaire Jack Ma Yun's Alibaba Group Holding in exchange for 10.6 billion Hong Kong dollars ($1.35 billion) in shares.
China 21st Century Education Group was among the most traded stocks in the city as it jumped to HK$1.71, compared with its initial public offering at HK$1.13. The stock rallied as high as HK$1.91 during the day.
Instant-noodle maker Tingyi Holding gained 5.4% after it reported a 64.3% jump in profit and a 5.9% increase in revenue for the March quarter.
Luye Pharma Group lost 4% amid the broad market weakness. The company said it had entered a collaboration and licensing agreement with U.S.-based Elpis Biopharmaceuticals to research and develop immuno-oncology treatments. Under the agreement, Luye will be responsible for the treatments' development and commercialization in China.
Honma Golf slid 2.5% after it reported a 20.6% drop in net profit for the year ended March 31 compared with a year earlier.
-- Amy Lam