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Hong Kong stocks slump most in Asia, yuan falls to 11-year low

A general view of the financial Central district in Hong Kong, July 25, 2019. (PHOTO: REUTERS/Tyrone Siu)

By Bloomberg News

(Bloomberg) -- Hong Kong stocks tumbled the most in Asia and the yuan weakened to an 11-year low amid concern over the intensifying trade war.

The Hang Seng Index dropped 3.2% at 9:44 a.m. in Hong Kong, poised for its biggest loss since October. Meat producer WH Group Ltd. and Techtronic Industries Co. led declines. The yuan slid 0.7% to 7.1443 per dollar, while the Shanghai Composite Index dropped 1.1%.

China said Friday it would impose retaliatory tariffs on another $75 billion of U.S. goods. President Donald Trump responded by announcing additional levies on Chinese imports. He also called for American companies to pull out of Asia’s largest economy. Adding to the risk-off sentiment, Hong Kong police and protesters clashed for a 12th weekend and China sent the strongest warning yet it’s thinking of using troops on Hong Kong streets.

The offshore yuan was down 0.5% at 7.1661, after falling as much as 0.86% earlier to a record low. The central bank set its daily fixing at 7.0570 on Monday, stronger than analysts expected. The onshore yuan has dropped 1.7% in an eight-day losing streak.

"The gloves are coming off on both sides and as such yuan depreciation is an obvious cushion against US tariffs," said Mitul Kotecha, a senior emerging markets economist at Toronto-Dominion Bank. "As long as China can ensure that yuan weakness is well controlled i.e. it does not provoke strong outflows, expect to see further depreciation in the currency."

The Hang Seng Index headed for its lowest close since Aug. 14. A gauge of the city’s property stocks tumbled 3.9%.

“It’s not only China central government’s authority but also its responsibility to intervene when riots take place in Hong Kong,” the state-run Xinhua News Agency said Sunday in a commentary, drawing on comments by former top leader Deng Xiaoping saying Beijing has to act under such circumstances.

© 2019 Bloomberg L.P.