Hong Kong, China stocks fall on Fed views and energy sector weakness

SHANGHAI: Hong Kong stocks joined a wide slump in Asia on Thursday morning, after the U.S. Federal Reserve raised interest rates and signalled a faster-than-expected pace of policy tightening, making emerging markets less attractive.

Chinese shares, less exposed to global market volatility due to strict capital controls, dropped less sharply than Hong Kong ones. Still, its banking sector plunged amid fears that a dramatic sell-off in the bond market could hurt lenders' balance sheets.

Hong Kong's Hang Seng index fell 1.7 percent to 22,076.38 points. If the losses at midday are not pared in the afternoon, the index will close at a four-month low.

The Hong Kong China Enterprises Index lost 2.4 percent, to hit 9,469.34 points.

Markets had all but priced in the quarter-point rate increase by the Fed, but investors were spooked after the U.S. central bank projected three hikes next year, up from two previously, indicating a more aggressive tightening path.

The Hong Kong Monetary Authority on Thursday followed the Fed's lead, raising the city's base rate by 25 basis points.

All sectors in the city's stock market lost ground, with the rate-sensitive property sector leading the decline.

The energy sector in both Hong Kong and China retreated, slipping more than 2 percent and 1 percent respectively, in line with sliding oil prices overnight.

In China, the blue-chip CSI300 index fell 0.5 percent, to 3,361.17 points, while the Shanghai Composite Index lost 0.3 percent, to 3,131.31 points.

"The Fed's rate hike, rumours about some problems in the bond markets, along with the stock market's recent downward trend, all added to today's loss," said Zhang Qi, a Shanghai-based analyst with Haitong Securities.

Sector performance was mixed in mainland markets, with gains in tech shares cancelled out by losses in financial and energy stocks.

Banking stocks tumbled nearly 2.5 percent amid an accelerated sell-off in China's bond market.

Investors found some solace from gains in small-caps. Shenzhen's start-up board ChiNext was up over 1.5 percent at midday, on signs that some foreign investors are buying small-caps after that index's recent weakness.