Stocks in Hong Kong and mainland China have tanked after Beijing ordered the US to close its consulate in Chengdu, the latest move in a game of tit-for-tat between the two nations that has sent tensions soaring.
On the mainland the Shenzhen Composite Index fell 5%, with only 177 out of over 2,000 listed stocks making gains. The CSI 300 and the Shanghai Composite Index also fell by 4.4% and 3.9% respectively.
Hong Kong fared slightly better but still saw a significant drop, with the Hang Seng Index falling by 2.2%. Some Hong Kong tech firms saw modest rises on the back of interest in the upcoming Hang Seng Tech Index, but this was the only sector to show any resilience.
The slide comes following the decision by Chinese officials to order the closure of the Chengdu consulate, located in the southwest of the country. The decision came in retaliation to a similar move by US officials who shut down the Chinese consulate in Houston, accusing its diplomats of acting illegally.
The latest escalation in tensions has spooked investors and prompted market sell-offs, a situation set to continue if calmer heads don’t prevail according to one analyst.
“Unless we see a de-escalation the markets still have long downward trend ahead of them before they start to settle,” said Andrew Winskill, head of institutional trading at Highview Management, adding that he expected to a quick bounce back should tensions calm.
The effects of the move were seen in a less severe manner in other parts of the world too. The Euro Stoxx 600 index lost 1.4%, and the S&P 500 was expected to drop 0.1% on opening.