Asian markets fall as new Chinese law puts Hong Kong’s future in doubt

Asian markets mostly fell in early trading Friday, ahead of a news conference by President Donald Trump regarding China.

Japan’s Nikkei NIK, -0.17% slipped 0.3% and Hong Kong’s Hang Seng Index HSI, -0.74% fell 0.3%. The Shanghai Composite SHCOMP, +0.21% inched up 0.2% and the smaller-cap Shenzhen Composite 399106, +0.95% rose 1%. South Korea’s Kospi 180721, +0.05% fell 0.3% while benchmark indexes in Taiwan Y9999, -0.01% , Singapore STI, -0.17% , Malaysia FBMKLCI, +1.08% and Indonesia JAKIDX, +0.79% were mixed. Australia’s S&P/ASX 200 XJO, -1.63% fell 0.8%.

Tensions have been rising between the U.S. and China, with Trump accusing China of contributing to the early spread of the coronavirus and U.S. officials criticizing China’s moves to impose a new national-security law on Hong Kong. China’s ceremonial legislature approved the Hong Kong bill Thursday, allowing China to supercede Hong Kong’s local government and rein in civil liberties.

Secretary of State Mike Pompeo said Hong Kong is effectively no longer autonomous, opening the door to potential sanctions against China, based on legislation passed last year supporting Hong Kong’s autonomy. The U.K., Australia and Canada have joined the U.S. in condemning the new law.

There are also concerns that a Chinese crackdown on Hong Kong could force businesses to flee, hurting its status as a global financial hub.

“All focus today will be on pre-positioning ahead of U.S. President Trump’s announcing new policies related to China in response to China’s decision to move ahead with national security legislation for Hong Kong,” Stephen Innes, chief global markets strategist at AxiCorp, wrote in a note. Innes also warned that if the U.S. was going to treat Hong Kong as just another city in China, ratings agencies could be forced to do the same.

“A bigger risk could be the reclassification of HK as an emerging market,” he wrote. “Hong Kong is in the MSCI World index, for example, along with other developed markets. China is in the emerging markets index. If Hong Kong is to be reclassified as an emerging market, along with Shanghai and Shenzhen, a huge amount of capital invested in Hong Kong will have no choice but to leave.”

U.S. stock futures were down Thursday night. Earlier Thursday, stocks sank immediately after reports of Trump’s upcoming announcement, spoiling a three-day rally. The Dow Jones Industrial Average DJIA, -0.57% closed down 147.63 points, or 0.6%, at 25,400.64, well off its intraday high at 25,758.79. Meanwhile, the S&P 500 SPX, -0.21% lost 6.40 points, or 0.2%, to close at 3,029.73, and the Nasdaq Composite Index COMP, -0.46% retreated 43.37 points, or 0.5%, at 9,368.99.

U.S. crude oil CLN20, -3.20% for delivery in July fell to $33.31 a barrel in electronic trading on the New York Mercantile Exchange, while July Brent crude BRNN20, -2.89% , the international standard, fell to $35 per barrel.

The dollar USDJPY, -0.39% fell to 107.41 Japanese yen.