HONG KONG (Nikkei Markets) -- Hong Kong shares retreated from 26-month highs as rising geopolitical tensions between the U.S. and North Korea sparked a flight to safety among investors.
The Hang Seng Index shed 0.8% to 27,629.68 by midday. Mainland financial stocks including China Life Insurance, Bank of China (BOC) and Ping An Insurance Group lost at least 1.6%. The H-share index of some of the city's largest Chinese companies fell 1.5%. China Mobile added 0.4% ahead of its first-half earnings on Thursday, while heavyweight Tencent Holdings, which reports results on Aug. 16, slipped 0.5% from a record high. Apple-supplier AAC Technologies Holdings fell 2% for its first decline in four days after the Nasdaq Composite lost 0.2% overnight.
The Japanese yen rose 0.4% against the U.S. dollar and spot gold prices advanced 0.4% as investors bought into safe-haven assets after U.S. President Donald Trump warned threats from North Korea would be met with "fire and fury." Following Trump's comments, Pyongyang said it is examining plans for a missile strike on the U.S. military base of Guam. Markets in the rest of Asia also traded lower, with the Nikkei Asia300 Index sliding 0.6%.
"Hong Kong markets have been affected by the political tensions between the U.S. and North Korea, and also the fall on Wall Street," said Ben Kwong, executive director at KGI Asia. "The city's stock market is already technically overbought, so we're seeing some profit-taking pressure."
The Hang Seng Index's 14-day relative strength index has held over 70 for three weeks, a signal to some technical analysts that the gauge maybe overbought.
Hong Kong Exchanges & Clearing fell 1.8%. During the noon break, the bourse operator reported a 17% increase in first-half net profit. Property developer Wharf Holdings added 1% before reporting a 25% jump in profit for the six months ended June 30.
In the mainland, the Shanghai Composite fell 0.2%, while its Shenzhen counterpart added 0.2%. Early Wednesday, a 7.0 magnitude earthquake struck China's inland province of Sichuan, at least 13 people killed according to the latest official mainland media report. Sichuan Chuantou Energy was down 0.8% in Shanghai Wednesday, while Sichuan Languang Development lost 0.6%.
On the other hand, shares of local infrastructure building companies spiked up.
Shanghai-listed Sichuan Road & Bridge was up over 10% at one point, and Shenzhen-listed Chengdu Road & Bridge Engineering was up 5% during the morning session.
Official data released Wednesday showed China's retail inflation came in at a slightly slower-than-expected 1.4% in July, while the producer price index rose 5.5%. Analysts polled by Reuters had expected the inflation at 1.5% and PPI at 5.5%.
Fashion group Esprit Holdings jumped 6.8% in Hong Kong after saying it expects profit for the first-half to almost quadruple from the year earlier.
China Innovation Investment surged 9.1% after saying it expects to swing to a profit for the first six month of 2017.
Semiconductor Manufacturing International tumbled 9.2% following a more than 60% drop in second-quarter profit. The company reported an 8.8% increase in quarterly revenue.
Silver Grant International Industries fell 8.2%, trimming year-to-date gains to 46%. The property and investment company late Tuesday said it expects first-half profit to record a "significant increment."
Coking coal procurer E-commodities Holdings added 7.7% after forecasting first-half profit of HK$400 million ($51 million) to HK$600 million, compared with HK$115 million a year ago.
Clothing manufacturer Evergreen International Holdings slid 4.6% after saying it expects first-half loss to widen from the year earlier.
Department-store operator Maoye International Holdings climbed 3.9% after saying it expects profit for the first-half to increase at least 11 times.
--Suzannah Benjamin and V. Phani Kumar