Hong Kong and Argentina rein risk-taking | CMC Markets Daily Commentary
The escalation of Hong Kong (HK) protests into an airport shutdown and a stunning plunge in the Argentina peso on election prospects weighed on market sentiment on Monday, resulting in broad-based selloff in equities and a chase into safe-havens.
As the HK protests extended into its 10th consecutive week, investors are getting increasingly concerned about the city’s short-term economic development and long-term stability. A plunge in HK’s domestic airline, properties, luxury retailers and banking sector reflected a bearish outlook, as recent riots have exerted a very negative impact on its global image, business conductivity and investments.
The Hang Seng Index tumbled over 2% to 25,300 area in after-hours trading, following HK airport’s decision to shut all flights remaining on Monday. USD/HKD is trading close to the upper bound of the currency peg at 7.846 area, suggesting strong selling pressure on the HK dollar as capital fled away into other safe-haven currencies.
Argentina peso tumbled as much as 30% against the greenback before narrowing down the losses to 16.3% as the pro-populism primary election result sent shock waves to the credit market. Investors seem to have dumped all Argentinian assets, from equities to currency and bonds as a result of a surging likelihood of another sovereign default. The Credit-default swaps (CDS) show that the market is pricing in a 75% default probability in the next five years.
Asian markets are expected to open lower on Tuesday, taking cues from a bloodbath US trading session overnight and fresh fears of HK and Argentina crises. Gold price extended gain into the US$ 1,510 area and silver price returned to above US$ 17.0. This mass selloff in risk assets and rush into safe-haven assets seem to be set to carry on for this week.
Singapore investors are returning to the market today following a four-day National Day holiday break. Deteriorating external markets over the long weekend has resulted in a knee-jerk selloff early this morning, sending the Straits Times Index down by 28 points, or 0.9% to 3,140 points. HK-related companies namely HK Land, Jardine Matheson, Jardine C&C were among the worst performing blue chips, whereas domestic-focused counters namely ST Engineering, CapitaCom Trust, UOL were outperforming.
For currency traders, today’s UK unemployment data and US CPI readings are important to set the tone for GBP and USD pairs.
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