Hong Kong stocks head toward the biggest weekly drop this year

[HONG KONG] Stocks in Hong Kong headed for their biggest weekly slide of 2017 and volatility surged as US President Donald Trump stepped up pressure on North Korea.

The Hang Seng Index fell for a third straight day for the first time since June, heading for a weekly drop of 2 per cent. Tencent Holdings Ltd was in line for its biggest drop in a month as investors took profit in some top performers. The HSI Volatility Index, which measures expected price swings on the Hong Kong benchmark, surged 16 per cent, headed for its biggest weekly gain since January 2016. The Hang Seng China Enterprises Index was headed for its biggest retreat since March, and markets on the mainland slid too. The Shanghai Composite Index lost 1.6 per cent, set for its biggest loss since Dec 12.

"All the investors are screaming, 'where's the door?"' said Andrew Clarke, director of trading at Mirabaud Asia Ltd in Hong Kong. "Hong Kong has been a market where it's all in or all out - retail clients are taking big profits."

Tencent fell 3.3 per cent, the most since July 4, after a selloff in technology stocks in the US and as it emerged the company is being investigated for cyber-security law violations. Other outperformers this year also hit the brakes, with Geely Automobile Holdings Ltd and AAC Technologies Holdings Inc sliding more than 2.5 per cent. Hong Kong Exchanges & Clearing Ltd continued its slide from Thursday, when China Merchants Securities Co was among those to downgrade the company to sell.

Markets across Asia were down after US President Donald Trump issued another warning to North Korea, promising a response to any strike against America or its allies. US equities sold off the most since May on Thursday, sparking an unprecedented rush for protection in the options market.

Tencent was the biggest drag on the Hang Seng Index. Investors are taking profit after the tech stock selloff in the US and to avoid earnings uncertainty, according to Richard Ko, an analyst at China Merchants Securities Co.  A measure of technology companies was among the biggest decliners on the Hang Seng Composite Index, with BYD Electronic International Co and IGG Inc tumbling more than 4 per cent.

HKEX slid 3.1 per cent and was headed for a weekly drop of 7.1per cent, the most in nearly two years. Market turnover in the city is unlikely to stay strong, according to Jerry Li, a Hong Kong-based analyst with China Merchants Securities.

Volume on the Hang Seng Index was 88 per cent more than its 30-day intraday average, according to data compiled by Bloomberg.

On the mainland, a measure of materials companies fell the most on the CSI 300 Index, with China Molybdenum Co and Aluminum Corp of China dropping more than 6.5 per cent. The subindex has jumped 26 per cent this year, more than twice the gains by the broader gauge.

The CSI 300 Index fell 1.5 per cent and the Shenzhen Composite Index was down 1.1 per cent.

BLOOMBERG