Hong Kong stocks set to match longest losing streak since 1997

[HONG KONG] Hong Kong equities are rapidly turning into a losing bet as economic woes and escalating street protests hammer sentiment.

The MSCI Hong Kong Index slumped 2.5 per cent on Monday in a ninth day of declines, matching the longest streak since the 1997 handover. Landlords, retail stocks and casinos once again bore the brunt of the selling as protesters sought to shut down the city with a general strike. The weaker Chinese currency isn't helping either, as many of the city's firms generate their earnings in yuan.

Hong Kong business confidence, already strained by the US-China trade war, faces fresh challenges as the street clashes damp spending and deter tourists. The economy contracted more than expected last quarter from the previous three months, with retail sales plunging 6.7 per cent in June from a year earlier, while an IHS Markit purchasing managers' index fell to the lowest lowest since 2009.

The Hong Kong dollar, which is linked to the greenback, weakened as much as 0.07 per cent to 7.8321 on Monday, its lowest since June 19.

The imposition of new tariffs on Chinese goods by US President Donald Trump will likely only worsen the outlook for the former British colony. Even before that move, embattled Chief Executive Carrie Lam said she saw "no room for optimism" for the city's economy this year as the trade war weighed on growth.

Louis Tse, a Hong Kong-based managing director at VC Asset Management Ltd, said the near-term outlook for the stock market depends on whether the benchmark Hang Seng Index (which includes shares of Chinese companies) stays above its June low of around 26,762. The gauge fell as much as 2.2 per cent to 26,328 on Monday.

"If we closed below this level, I think quite a few investors would sell, including us. That's the last straw. If that level can't provide a support, I think Hang Seng would go down further - much further. I can't see where the bottom is."

BLOOMBERG