HONG KONG (Reuters) - Hong Kong's share index lost almost 3% as unrest in the Asian financial hub worsened on Monday, with police firing live rounds at anti-government protesters on the eastern side of island and firing tear gas at protesters in the Central business district.
Investor sentiment suffered after a police officer shot and wounded one protester before trading commenced. The market had already been set for a shaky start after U.S. President Donald Trump said on Friday he has not agreed to roll back tariffs on Chinese goods as Beijing suggested last week.
The benchmark Hang Seng index (HSI) dropped the most among major Asian markets and stooped below the 27,000 points barrier for the first time since Nov. 1. The index finished the session down 2.6%. It has declined 1.3% since the protests first flared up in the second week of June, versus 6% gains in the MSCI All-Country World Index. (MIWD00000PUS)
"We have had six months of local unrest which is having a real impact on companies and the economy," said Jim McCafferty, Hong Kong-based head of equity research for Asia ex-Japan at Nomura. "Geographically agnostic investors will therefore favour geopolitically safer places like Japan."
Some interbank lending rates shot up to near three-month highs and the forwards market braced for more weakness for the Hong Kong Dollar , which traded near the weak end of its band at 7.8333 per dollar at 0858 GMT.
However, while the shooting dented sentiment on Monday, share prices will likely run unscathed from social tensions because the market is dominated by Chinese companies "which are not directly impacted by the local situation," said Anthony Chan, chief Asia investment strategist at Union Bancaire Privée.
The market is about add another such Chinese name to its ranks this month. E-commerce giant Alibaba (NYSE:BABA) is hoping to raise as much as $15 billion in the last week of November in what would be the biggest-ever cross-border secondary listing.
"A successful listing of Alibaba would be very helpful for the Hong Kong market," said Khiem Do, head of Greater China Investments at Barings.
He added that retail investors in the city have been parking their cash in easily liquidated fixed income products to avoid global market volatility, and could return to equities and drive up demand for the Alibaba deal.
"The amount of cash available for Hong Kong investors to put on the table is very high," he said.
The Hong Kong economy entered its first recession since the global financial crisis in the third quarter, shrinking 3.2% recent official estimates showed.