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Investors worry about Hong Kong’s future after China move

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Hong Kong: Investors scrambled to take cover after China moved to impose a new national security law to tighten its grip on Hong Kong, which investors feel will jeopardize its status as a global financial center.

Adding to the worries, China abandoned its long-held practice of setting and meeting annual growth targets at the country’s annual parliament gathering. In his address Premier Li Keqiang said economic situation was too uncertain because of uncertainties over the coronavirus and trade.

The US State Department has warned China this would imperil Hong Kong’s special status under US laws and US senators are expected to seek sanctions against Beijing for impinging on Hong Kong’s independence.

“The move by China’s National People’s Congress (NPC) to impose a new security law on Hong Kong effectively overrides the “One country, two systems” framework that has allowed Hong Kong to prosper since 1997,” Capital Economics Chief Asia Economist Mark Williams said in a note.

“The move will probably trigger protests and civil disruption that delays the city’s economic recovery from the coronavirus crisis. Further ahead, the erosion of Hong Kong’s autonomy will undermine the foundations of its economic success as an international city within China. And it is a reminder that the priority of the Party leadership is control, even if it comes with an economic cost.”

Hong Kong led the region lower with the benchmark Hang Seng index tumbling 5.56%. mainland China’s CSI300 retreated 1.79%, and Australia’s S&P ASX 200 index was down 0.96% after Fitch Ratings put the outlook on the country’s AAA rating to negative from stable.

Japan’s Nikkei 225 index ended down 0.8% getting some respite from Bank of Japan’s launch of a new lending facility to support bank lending to small businesses. It left benchmark rates unchanged as expected.

India’s Nifty 50 index fell 0.74% also supported by the country’s central bank’s easing measures with analysts expecting more supportive announcements in coming months.

“Today’s RBI moves are once again measured, and calibrated upon incoming data. The choice to bring forward the policy meeting once again shows the nimble nature of decision making within the RBI, and we believe RBI will continue to remain so,” Barclays analyst Rahul Bajoria said in a note.

“With rates down to 4.00%, we believe the central bank still has room to cut rates further, and we continue to expect another 50bp of rate cuts, most likely to be delivered by end-June – early July. This keeps our projection of terminal repo rate at 3.50%, with risks clearly biased towards rates going further lower.”

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