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Hang Seng smacks lower as China lashes out at Pompeo on Hong Kong

Hong Kong shares declined as investors reacted to the developing conflict between the US and China. Virtually all shares in the blue-chip Hang Seng index were in the red today. The index fell by more than 2%, becoming the worst-performing index in Asia.

China lashes out against the US

China lashed out against the United States after the latter ended its special relationship with Hong Kong. In a statement yesterday, Secretary of State, Mike Pompeo said that Hong Kong was not autonomous from China. That is after the city’s leadership voiced their support on Beijing’s security bill, that will be passed today. In a statement, he said:

“No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground.”

In response, Chinese officials lashed out against the US. In an editorial, the Beijing-funded Global Times wrote that the era of US intimidating China was over. They also hit out at Pompeo for making “arrogant” and “hysterical” comments about Hong Kong. They wrote:

“The US only has one card, which is Hong Kong’s separate customs territory status. If Washington wants to play this card, then let it do so. Hong Kong is the largest source of the US trade surplus, and there are about 85,000 US citizens in the Chinese city. Let’s just wait and see how the US will suffer from its own move of cancelling Hong Kong’s separate customs territory status.”

The move by the US will affect companies in the Hang Seng because they do well when there is stability. For example, it could introduce tariffs on goods that companies in the index sell.

Hang Seng supported by Mainland inflows

While Hang Seng index has been hammered, as we wrote yesterday, the reality is that it is being supported by money from Mainland China. According to Bloomberg, Chinese accredited investors have invested more than $35 billion in companies in the index.

Best and worst performers in Hang Seng index

Most companies in the Hang Seng were in the red today. CSPC Pharma, whose shares dropped by more than 12.1%, was the worst-performing company. It was followed by Sino Biopharmaceutical, AAC Technologies, New World, and Swire Pacific. All these dropped by more than 4%.

The best-performing companies in the index were Shenzhou International, China Shenhua, ICBC, and Want Want China.

Download our Q2 Market Global Market Outlook

If gold prices were to trade above the October 25 high of $1518.41, then the price might be able to reach the $1563.14 level, as the difference between the upper and lower limit of the pattern is added to the October 25 high. On a break to the October 11 low at $1473.68, the price might be able to reach the $1428.95, as the difference in the range is subtracted from the October 11 low.

Time will tell if bullish or bearish traders will command price as the chart pattern itself is neutral in its outlook.

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