Hong Kong's stocks are set for their biggest daily drop in six months on Thursday, as worries about the health of the global economy, particularly China, sparked a sell-off in financials and energy shares.
Reopening after a three-day break, the benchmark index fell 4 percent in late morning trade, catching up with its global peers with China-related stocks and banks being singled out for special punishment.
The China-enterprises index fell 5 percent, its worst single-day performance since Aug. 24, 2015 and was the top loser in Hong Kong as some investors preferred to execute their bearish China calls through the liquid Hong Kong market.
Technology shares also took a beating, mirroring its global counterparts, as investors were spooked by the fragility of the global economy and lenders' exposure to commodities.
"I think this is going to be a difficult year for investors and even a fledgling U.S. economic recovery looks to be snuffed out by global markets developments," said Nitin Dialdas, chief investment officer at Mandarin Capital in Hong Kong.
Volume was thin with only 14 billion Hong Kong dollars ($1.80 billion) worth of shares changing hands after local markets reopened following the Lunar New Year holidays. China's markets remain closed and will reopen on Feb. 15.
"There is very little good news and continuous bad news and this is a test of market confidence," said Charles Li, chief executive of the Hong Kong Stock exchange.
On a price-performance basis, Hong Kong's shares have held up relatively better than its mainland counterparts so far this year, but bloody clashes between street vendors and police over the long break stirred concerns about social stability in the former British colony.
Technical charts pointed to further pain ahead after the benchmark index gapped below a key support level - the 38.2 percent Fibonacci retracement of the 2007 peak to 2009 trough.
Property shares also came under pressure after data showed last week that Hong Kong property transactions fell 12 per cent in 2015, underscoring fears about an economic slowdown in the Asian financial centre even as it faces a growing drag from cooling activity in China.
