(Bloomberg) -- A gauge of Chinese stocks in Hong Kong headed for its biggest two-day drop in 10 months as the arrest of Huawei Technologies Co.’s chief financial officer dealt fragile investor sentiment another blow and deepened uncertainty over China’s relations with the U.S.
The Hang Seng China Enterprises Index dropped 2.8 percent as of 10:50 a.m., while the Shanghai Composite Index fell 1.1 percent. Technology stocks were among the hardest hit in both markets as Huawei suppliers tumbled. Huawei CFO Wanzhou Meng is facing extradition to the U.S. after her arrest in Vancouver in connection with potential violations by the company of American sanctions on Iran, according to Canada’s Department of Justice. The yuan slipped for a second day, weakening 0.23 percent against the dollar.
"The news on Huawei comes at a bad time when investor sentiment is weak" and when there’s lack of reasons to buy the market toward year-end, said Toshihiko Takamoto, a Singapore-based money manager at Asset Management One. "The consensus is that this trade war may drag on for 10 years."
The news on the Chinese tech giant adds to investor skepticism over the progress of China-U.S. trade relations. While selling pressure eased on Wednesday following China’s pledge to move quickly on U.S. trade commitments, doubts remain over whether there’s been any real breakthrough. When concerns flared in November that the U.S. was ramping up a campaign against Huawei, the Shanghai Composite Index slumped, with technology shares heavily hit.
The Hang Seng China Enterprises Index was headed for a two-day decline of 4 percent, its biggest such drop since Feb. 9. Hong Kong’s benchmark Hang Seng Index retreated 2.5 percent on Thursday, with AAC Technologies Holdings Inc. and Huawei supplier Sunny Optical Technology Group Co. declining more than 4.5 percent. ZTE Corp (HK:0763). slid at least 5 percent in Hong Kong and in Shenzhen.
Other index, stock moves:
- Shenzhen Composite Index -1.1%, CSI 300 Index -1.4% with telecom shares among biggest decliners
- Other Huawei suppliers: O-film Tech -3.9%, GettopAcoustic -5%
- 10-year sovereign bond yield little changed at 3.32% after falling on Wednesday to lowest since April 2017
- Foreign investors sells onshore stocks via Hong Kong trading links for the first time in nine days, offloading 2.6b yuan