Hong Kong stocks fell strongly, Friday, in the first trading session in October, under pressure from the jump in global bond yields and rising oil prices, which prompted investors to reduce their exposure to high-risk assets amid fears of continued volatility in the markets.
The standard Hang Seng Index fell 2.6 percent by mid-session, while the Hang Seng Chinese Enterprises Index and the Hang Seng Technology Index each lost more than 2 percent. While mainland markets in China were closed for a week-long holiday on the occasion of National Day.
The losses came after the yield on 10-year US Treasury bonds rose to the highest level in more than two decades, at a time when global debt markets were exposed to a new wave of selling that pushed borrowing costs in the United States, France and Japan to levels not seen in decades.
The sharp increase in yields poses a particular challenge to the Hong Kong market, which is sensitive to movements in global interest rates. Higher borrowing costs tighten financial liquidity, reduce the attractiveness of stocks compared to bonds, and increase pressure on the valuations of technology companies and other growth sectors.
High oil prices have increased caution, as investors monitor the repercussions of geopolitical tensions on energy markets and global inflation, and what they may mean for the path of interest rates during the coming period.
At the sector level, biotechnology and financial institutions stocks led the decline, in light of broad selling operations that included most sectors of the market. Shares of casino operators in Macau listed in Hong Kong were also under strong pressure, after data showed a continued decline in revenues from the city's gaming sector during September.
Galaxy Entertainment shares fell 6 percent, while other stocks in the sector recorded wide losses. Hong Kong's decline comes in light of the absence of trading in mainland China, where financial markets have been closed since October 1 on the occasion of the National Day holiday.
The Chinese market holiday will continue until October 7, with mainland stock exchanges resuming trading on Thursday, October 8, temporarily depriving the Hong Kong market of one of the main sources of liquidity and guidance for regional investors.
Movements in bond yields and oil prices remain the factors that most influence investor appetite in the near term, especially with increasing concerns that global inflationary pressures will keep interest rates high for a longer period, which may continue to pressure Asian stock markets that are sensitive to the cost of financing.
European stocks rose slightly on Friday after a sharp sell-off caused by turmoil in the bond market, at a time when investors were awaiting inflation data in the euro zone and the US jobs report in search of new indicators about the outlook for monetary policy.
The European Stoxx 600 index rose 0.4 percent to 629.18 points by 07:20 GMT, according to Reuters.
The index closed down 1.3 percent on Thursday, recording its lowest level in more than three months, coinciding with the rise in global government bond yields to their highest levels in several years.
Attention is now turning to the preliminary reading of inflation in the euro zone, scheduled for release later today, which may provide indications about the course of the European Central Bank's monetary policy.
Investors are also awaiting the US non-farm payrolls report, scheduled to be released at 12:30 GMT, amid expectations that 90,000 jobs will be added in September.
European bank stocks are on track to record their worst weekly performance since April, affected by fears that high interest rates will harm economic activity.
German Commerzbank shares fell 2 percent, after RBC Bank downgraded the stock from “performing beyond the sector’s performance” to “performing in line with the sector’s performance.”
Puma shares also declined 1.2 percent, after its American competitor, Nike, expected a sharp and unexpected decline in its revenues for the entire year, in light of continued weak demand in China and intensifying competition.
Copper prices rose during Friday trading, taking advantage of growing concerns about global supplies, but the gains were not enough to compensate for the losses of the previous days, leaving the red metal on track to record its worst weekly decline since last April.
The three-month standard copper price on the London Metal Exchange rose by 0.32 percent to $14,289 per metric ton by 03:00 GMT, but remained down by about 2.28 percent compared to its level at the end of last week, according to Reuters.
The supply support came after official data issued on Wednesday showed a decline in copper production in Chile, the world's largest producer of the metal, by 12.8 percent on an annual basis during August.
Supervisors at the Chilean Escondida mine, the largest copper mine in the world, also rejected an offer for a new collective agreement. This opens the door to the possibility of a strike, and increases concerns about global supplies.
Daniel Haynes, chief commodities strategist at ANZ Bank, said that these developments come at a time when the sector is suffering from a general decline in production, with the difficulty of maintaining aging infrastructure amid complex operating conditions.
In China, weekly data issued on Wednesday showed a decline in copper stocks in warehouses monitored by the Shanghai Futures Exchange to 38,744 tons, the lowest level since January 2024. This reflects the continued scarcity of supply.
The Shanghai Stock Exchange currently remains closed on the occasion of the Chinese National Day, and trading will resume on October 8th.
Despite these supportive factors, supply concerns were unable to limit the pressures on copper this week, with the US dollar rising to its highest levels in 17 months, driven by a broad selling wave in global bond markets as a result of ongoing fears of high inflation and increasing government debt burdens.
The rise of the dollar usually increases the cost of goods denominated in the US currency, including copper, for buyers who hold other currencies, which puts pressure on demand.
Bond market turmoil has also pushed global borrowing costs to their highest levels in decades, which threatens to weaken global economic activity and negatively affects copper, which is known in the markets as “Dr. Copper” due to its use as an indicator of the health of the global economy.
As for the rest of the basic metals on the London Stock Exchange, aluminum fell by 0.18 percent, while zinc rose by 0.15 percent, and lead increased slightly by 0.03 percent. In contrast, nickel fell by 0.19 percent, and tin fell by 0.72 percent.
