Hong Kong stocks followed regional markets lower on Monday, after North Korea’s latest nuclear test heightened geopolitical tensions. North Korea on Sunday conducted its sixth and most powerful nuclear test, which it said was of an advanced hydrogen bomb for a long-range missile, prompting the threat of a “massive” military response from the United States if it or its allies were threatened.
The Hang Seng index fell 0.8 percent, to 27,740.26, while the China Enterprises Index lost 0.9 percent, to 11,182.67 points. The market has risen more than a quarter so far this year on the back of robust earnings growth at Chinese companies that reflects a strong recovery in China’s economy.
However, UBS strategist Gao Ting warned that rising raw material prices – which helped boost earnings at Chinese resource firms – could squeeze margins in certain downstream sectors such as power generation, petrochemicals, white goods, food processing and apparel. Most sectors fell on Monday, with properties and industrial firms among the biggest losers.