HONG KONG -- The Hong Kong stock market saw the worst post-Lunar New Year session in 22 years on Thursday, a day after U.S. Federal Reserve chair Janet Yellen confirmed fears of a global slowdown in her testimony to Congress.
Yellen raised the likelihood that U.S. interest rate hikes will be put on hold and possibly even cut over concerns about external risks to the U.S. economy and convulsions across stock markets worldwide.
"Foreign economic developments, in particular, pose risks to U.S. economic growth," said Yellen, referring to the debilitating effects of China's economic slowdown, most remarkably, in dragging commodities prices down.
On the back of those comments, the Hong Kong bourse reopened after a three-day break to a sharp sell-off, with the benchmark Hang Seng Index shedding 3.8% to close at its lowest level since June 2012 at 18,545.80. The Hang Seng China Enterprise Index of Hong Kong-listed mainland companies fell 4.9% to end at 7,657.92.
The city's blue chips fell almost across the board, with technology company Lenovo Group, which recently posted disappointing top-line growth, leading the decline with a 6.7% drop to 6.35 Hong Kong dollars.
Financials and oil stocks bore the brunt of the selldown. China Life Insurance slumped 6.6% to HK$16.44. Other insurers such as Ping An Insurance Group and AIA Group lost 5.6% at HK$39.15 and 3.7% at HK$37.95, respectively.
HSBC fell 5.44% to HK$49.50. Its Chinese counterparts Agricultural Bank of China, China Construction Bank, Bank of China, and Industrial and Commercial Bank of China all dropped about 4% over worries about a mounting credit crisis on the mainland.
Consumer stocks such as Belle International, Hengan International and Tingyi Holding all lost around 6%. A fierce riot in Mongkok, one of the most popular shopping districts in Hong Kong, during the holidays has hurt sentiment toward the city's already-battered retail sector.
Bad news from China also contributed to the sell-off. Before the holiday, the People's Bank of China reported that the country's foreign exchange reserve had fallen to $3.23 trillion in January, the lowest level since 2012, depleted by the central bank's defense of both its currency and stock market.
On Wednesday, Yellen's comments were scrutinized for clues about future interest rate direction. She said that "monetary policy is not on a pre-set course," suggesting that a rate cut could be considered if necessary. Overnight, the Dow Jones Industrial Average and the S&P 500 indexes ended slightly down, posting their fourth consecutive day of losses, while the Nasdaq ended three days of decline.
Investors looking for safe havens in the risk-off environment pushed the spot gold price up to $1,207.6, the highest level since May 22.
While mainland China and Taiwan markets remained shut for the Chinese New Year holiday until next week, most bourses across Asia faltered.
South Korea, which also reopened after a long Lunar New Year break, saw its benchmark Kospi Index lose 2.9%. Singapore's Straits Times Index and Thailand's SET index dropped 1.7% and 1.84%, respectively. India's Sensex Index closed 3.3% lower to its weakest level since May 2014.
The Indonesian and Philippine markets were the only ones bucking the trend, rising 0.9% and 0.3%, respectively.