HONG KONG (Reuters) - Japanese brokerage Nomura (T:8604) downgraded its recommendation on Hong Kong stocks on Monday as violent protests and a worsening U.S.-China trade war darkened the outlook for the former British colony's businesses.
Anti-government demonstrations in the city escalated over the weekend with protesters hurling Molotov cocktails at security forces who responded with water cannon and tear gas, as protests entered their third month.
"We are concerned that the ongoing political tensions in HK are now affecting the key pillars of the economy (such as retail sales, tourism, property prices) and thus the outlook of corporate earnings," Nomura said in a research note on Monday.
Nomura has cut its rating on MSCI's basket of Hong Kong companies to "underweight" from "overweight".
Hong Kong is bracing for its first recession since the financial crisis.
The protracted U.S.-China tariff war is also piling pressure on the trade-reliant territory, with yuan depreciation hurting the valuation of Chinese companies listed in the financial center, said Nomura.
Over the weekend, the United States added tariffs on some $550 billion of Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods.
The Chinese currency has lost 3.7% so far this month as the trade war escalated. It was down 0.6% as of midday local time.