SHANGHAI: China’s blue-chip index hit a nearly five-year low on Monday, while Hong Kong stocks shed nearly 2% amid weakening confidence in the mainland economy and rising geopolitical tensions.

Sentiment was also dampened by news that China’s securities regulator is allowing mutual fund managers to sell more shares than they buy each day, removing a net-selling ban introduced late last year.

The CSI300 Index ended down 1.3%, its lowest closing level since February 2019. The Shanghai Composite Index declined 1.4% to end at its lowest since April, 2022.

In Hong Kong, the benchmark Hang Seng Index dropped 1.9%, led by tech shares.

Taiwan’s defence ministry said it detected three more Chinese balloons flying over the Taiwan Strait on Sunday. The ministry on Saturday accused China of threatening aviation safety and waging psychological warfare on the island’s people with the balloons, days before key Taiwanese elections.

China stocks end first week of 2024 lower

Meanwhile, China’s foreign ministry said on Sunday the country will sanction five U.S. military manufacturers in response to the latest round of U.S. arms sales to Taiwan.

“Geopolitics remains a major focus – and, looking at the current macro environment, deglobalisation resulting from tensions between countries has the potential to split the world into a series of incompatible economies, leading to an unstable global economy,” Eugene Qian, China country head of UBS told the UBS Greater China Conference on Monday.

On China’s economy, he said “the property market remains fragile, with investor sentiment and activities settling at a lower level.”

Shanghai’s tech-focused STAR50 Index tumbled nearly 3% to fresh record lows.

In Hong Kong, the Hang Seng Tech Index slumped 3% to a 13-month low. An index tracking Chinese developers dropped 2.2%.