SHANGHAI: China stocks fell on Monday as elevated Sino-U.S. geopolitical tensions dented investor sentiment in a decline tracking Asian shares lower after the latest U.S. jobs report renewed concerns of more rate hikes from the Federal Reserve.
China’s CSI 300 Index lost 1.7% by the end of the morning session, while Hong Kong’s Hang Seng benchmark slipped 2.3%.
A U.S. military fighter jet shot down a suspected Chinese spy balloon on Saturday, a week after it first entered U.S. airspace and triggered a dramatic spying saga that has clouded already strained Sino-U.S. relations.
China strongly condemned the military strike on the balloon that it says was used for meteorological and other scientific purposes. Beijing said the balloon had strayed into U.S. airspace “completely accidentally”.
“Undoubtedly, the incident is a negative headline for the market,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management. “The strong U.S. jobs report also cooled the fever of ‘rate pivot’ perceptions, leading to a surging dollar and a declining yuan.”
In a note, ING analysts wrote, “The implication is an intensified tech war. Both sides will likely impose more export bans on technology in different industries.”
China’s yuan touched a near one-month low against the dollar, and markets widely expect the heightened geopolitical risks could cap further upside room of the local currency.
Foreign investors sold a net 4.4 billion yuan ($649 million) of Chinese shares via the Stock Connect Scheme so far on Monday.
Chinese shares in consumer staples dropped 1.7% and tech giants listed in Hong Kong skidded 3.7% to lead the decline.
Meanwhile the Hang Seng benchmark is on course for the lowest close in a month, following a strong rebound since end-October as investors bet on China’s economic reopening and other measures to support growth.
“After a 50% rally in the Hang Seng and much more in other major China market indices, rifts are starting to emerge,” said Hao Hong, chief economist at Grow Investment Group. “The itch to take profit cannot be denied.”
However, he added, “both valuation and China’s market capitalisation also suggest that the bottom in last October is indeed a secular turning point.”
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