Friday 29 May 2020 7:17 am

Asian stocks dip on worries over US Hong Kong security law backlash

Asian stocks dipped today as investors nervously waited for US President Donald Trump’s reaction to China’s tightening hold over Hong Kong.

China’s parliament yesterday pressed on with national security legislation for Hong Kong, raising fears over its freedoms and its future as a financial centre.

Trump, who has promised a tough response, said he will hold a press conference on China later today.

Read more: Raab: UK will increase visa rights if China goes ahead with Hong Kong law

European futures were in the red, with FTSE futures down 0.7 per cent and EuroSTOXX 50 futures one per cent lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1 per cent. The Nikkei retreated slightly from a three-month high and, though moves were small, the safe-haven yen rose to a two-week high and bonds rose.

“It is seen as a major threat to the rally we’ve had and the recovery,” said Shane Oliver, chief economist at Australian wealth manager AMP Capital.

The US response could range from a tearing up of the Phase one trade deal and fresh tariffs on China, to milder travel or financial sanctions on Chinese officials, he said.

“If it’s at the relatively mild end, then I don’t think it would derail the recovery bull market, but if it’s at the more extreme end with tariffs and harsh treatment of Hong Kong, then I think it gets more problematic,” Oliver said.

Trump offered a muted response to Hong Kong’s mass democracy protests last year while prioritising a trade deal with Chinese President Xi Jinping. But ties with Beijing have since soured considerably through the covid-19 pandemic.

Read more: China’s parliament approves controversial Hong Kong security bill

Hong Kong’s government warned on Friday that withdrawing its special US status, which has underpinned it as a finance hub, could be a “double-edged sword” and urged the US to stop interfering in internal affairs.

The Chinese yuan weakened slightly in onshore trade.

Hong Kong’s Hang Seng index was 0.5 per cent lower in early trade and has lost about three per cent in the two weeks since news of China’s security legislation broke.