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(Alliance News) - Stock prices in London were sharply lower at midday on Friday after China moved to impose a controversial security law on the restive semi-autonomous city of Hong Kong, causing Asia-exposed stocks to drop.
China moved to quash Hong Kong's pro-democracy movement by unveiling plans for a new security law at the start of its annual parliamentary session that also laid bare the "immense" economic challenges caused by the coronavirus.
The most controversial move at the NPC opening was the introduction of a proposal to impose a security law in Hong Kong. This was immediately denounced by the US and pro-democracy figures in the financial hub who called it a death sentence for the territory's unique freedoms.
The draft proposal will "guard against, stop and punish any separatism, subversion of the national regime, terrorist group activities and such behaviours that seriously harm national security".
US President Donald Trump promised to respond "very strongly" once details emerge, and US senators introduced legislation to impose sanctions on any entity involved in curbing Hong Kong's autonomy.
Targets could include police who crackdown on demonstrators, Chinese officials involved in Hong Kong policy, and banks that conduct transactions with anyone who infringes on its freedoms.
Compounding investor concerns, China took the rare move of not setting an annual growth target this year after the coronavirus battered the world's second-largest economy and ravaged global growth.
Instead, given "great uncertainty" caused by the Covid-19 pandemic, Beijing will "give priority to stabilising employment and ensuring living standards", Premier Li Keqiang told the opening of the National People's Congress on Friday.
The Hang Seng index in Hong Kong ended down 5.6%. The Shanghai Composite closed down 1.4%. In Japan, Tokyo's Nikkei 225 index closed down 0.8%.
In London, the FTSE 100 index was down 72.51 points, or 1.4%, at 5,942.74, but is on track to end the week up 3.3%.
The mid-cap FTSE 250 index was down 150.26 points, or 1.1% at 16,235.70, while AIM All-Share index was up 0.2% at 837.22.
The Cboe UK 100 index was down 1.3% at 10.040.26. The Cboe 250 was down 1.0% at 13,801.80 and the Cboe UK Small Companies up 0.3% at 8,879.07.
In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were down 0.3% and 0.6% respectively in early afternoon trade.
CMC Markets analyst Michael Hewson said: "President Trump has already indicated that any actions to this end by China could well prompt a US response, which could raise tensions even further. These tensions are unlikely to go away with the US election looming in November, which means investors will not only have to contend with concerns about the economic damage caused by the pandemic, and the speed of any recovery, as well as a second wave of infections, but also with concerns over US, China relations. As if life wasn’t complicated enough.
"These concerns of a renewal of US, China trade tensions after the positivity of earlier in the week as economies tentatively start to reopen, has translated into another shift in sentiment as the optimism of the earlier this week gives way to concern, over future US, China relations as we head into the weekend."
Despite its dependence on the Chinese market, Burberry Group was the best blue-chip performer in London at midday, up 4.1%. The fashion house said it was performing well prior to the onset of Covid-19, which resulted in store closures and annual profit dropping as it took impairments.
Burberry delivered revenue of GBP2.63 billion in the 52 weeks ended March 28 compared to GBP2.72 billion the year prior. Pretax profit dropped to GBP168.5 million from GBP440.6 million year-on-year. Burberry highlighted that it had seen "strong" momentum in brand, product and sales before the Covid-19 outbreak, ahead of its previous expectations.
Comparable sales grew by 4% in the first nine months of its financial year, but dropped by 27% in the final quarter, with around 60% of retail stores closed at the end of March.
ITV was up 1.6% after Goldman Sachs raised the broadcaster to Buy from Neutral.
At the other end of the large-cap index, Asia-focused financial services firms were in the red, with Prudential down 7.0%, HSBC down 4.0% and Standard Chartered down 2.0%.
easyJet was down 1.3%. Shareholders of the FTSE 100 budget airline rejected all four resolutions put forward by founder & largest shareholder Stelios Haji-Ioannou to remove directors including the chair, chief executive officer and chief financial officer. Despite himself holding a 34% stake, only 43% of total votes at the general meeting held on Friday supported Haji-Ioannou.
The pound was quoted at USD1.2170 at midday, down from USD1.2250 at the London equities close Thursday, after dire UK retail sales figures.
Retail sales in the UK fell by a record in April, following widespread store closures to combat the spread of Covid-19, the Office for National Statistics said Friday.
The volume of retail sales in April plunged 18% versus the previous month, following a 5.2% drop in March. Year-on-year, retail volumes were down 23%.
In April, both value and volume retail measures had record declines - from 1988 when records began - the ONS said, as many stores paused trading from March 23 following official government guidance during the coronavirus pandemic.
The statistics office noted the index was last at this level in December 2005.
The euro stood at USD1.0880 at midday, down sharply from USD1.1008 at the European equities close Thursday.
Against the yen, the dollar was trading at JPY107.49, down from JPY107.85 late Thursday.
Japan's central bank offered hundreds of billions of dollars in additional lending to help small firms in the world's third-largest economy struggling with the economic devastation brought on by Covid-19.
The Bank of Japan expanded its loan programme by JPY30 trillion, bringing its total package of financial assistance to small and medium-sized firms to JPY75 trillion.
At an unscheduled meeting held to discuss the economic ramifications of the pandemic, the bank also extended the duration of the programme by six months until March 2021.
Stocks in New York are set for a lower open amid the tensions between China and Hong Kong.
The DJIA was called down 0.3%, the S&P 500 index down 0.5% and the Nasdaq Composite down 0.4%.
Brent oil was quoted at USD34.35 a barrel at midday, down sharply from USD36.18 at the close Thursday, after China set aside its economic growth target for 2020.
Abandoning the growth target "could be interpreted as putting less focus on infrastructure investment and could be viewed as negative for oil," commented Stephen Innes, chief market strategist at AxiCorp.
Gold was quoted at USD1,735.44 an ounce at midday, down from USD1,747.30 late Thursday.
Financial markets in the UK will be closed on Monday for the late May bank holiday.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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