Asia report: Hong Kong leads losses after collapse of Zhongzhi shadow bank

(Sharecast News) - Hong Kong led the losses in the Asia-Pacific markets on Monday, followed by mainland China, as investors reacted to the liquidation of Chinese shadow bank Zhongzhi late on Friday. Japan's markets were closed for the Coming of Age Day holiday, as the country was still dealing with the aftermath of the Sea of Japan earthquake on 1 January.

"In Asia, stocks experienced a gradual decline following a quiet start, influenced by post-data market volatility in the US and the absence of Japanese participants," said TickMill market analyst Patrick Munnelly.

"The markets are eagerly anticipating key inflation data releases later this week."

Munnelly said the Hang Seng and Shanghai Composite were under pressure due to concerns about shadow banking and geopolitical frictions.

"Hong Kong's losses were exacerbated by selling in the tech sector, while China Evergrande New Energy Vehicle shares slumped after its vice chairman's arrest."

Hong Kong leads broad losses across region

In Hong Kong, the Hang Seng Index dropped 1.88% to 16,224.45 points, influenced by concerns surrounding the bankruptcy liquidation of the shadow banking conglomerate Zhongzhi Enterprise Group, which was filed late last Friday.

The losses in the special administrative region were led by Xinyi Glass, down 7.58%; Zhongsheng Group, which lost 6.22%; and Meituan, which was off 4.89%.

In mainland China, both the Shanghai Composite and the Shenzhen Component saw losses, with the former falling by 1.42% to 2,887.54 points, and the latter declining by 1.85% to 8,947.72 points.

Leading the losers in Shanghai were Anzheng Fashion Group, Guangdong Wencan Die Casting, and Fujian Forecam Optics, which were down 8.18%, 6.61% and 6.43%, respectively.

South Korea's Kospi declined 0.4% to 2,567.82 points, with notable losses coming from stocks such as Hanjinkal, down 6.03%; CJ Cheiljedang, off 5.06%; and Celltrion, which was off 3.96%.

In Australia, the S&P/ASX 200 index dropped 0.5% to 7,451.50 points, with significant decreases in Magellan Financial Group, Neuren Pharmaceuticals, and TELIX Pharmaceuticals, which were down 7.36%, 4.19% and 3.98%, respectively.

New Zealand's S&P/NZX 50 index also experienced a minor decline of 0.11%, closing at 11,735.42 points.

Wellington's losses were led by Eroad, down 4.04%, Scales Corporation, off 3.51%, and Heartland Group, which was 3.33% lower.

On the currency front, the dollar was last down 0.15% against the yen, trading at JPY 144.41.

The greenback was meanwhile stronger on its downunder counterparts, rising 0.37% on the Aussie to AUD 1.4952, and advancing 0.31% against the Kiwi to change hands at NZD 1.6066.

In oil markets, both Brent crude and West Texas Intermediate futures were declining, with Brent last down 1.04% on ICE at $77.94 per barrel, and the NYMEX quote for West Texas Intermediate decreasing 1.07% to $73.02.

Zhongzhi bankruptcy triggers sell-off in China

At the top of the agenda was the news that Zhongzhi Enterprise Group, a shadow banking conglomerate, filed for bankruptcy late Friday, triggering a significant selloff in broader Chinese equities.

The company cited its inability to repay debt and the insufficient assets to cover its dues as the reasons behind the filing, according to a WeChat statement issued by Beijing's First Intermediate People's Court.

Zhongzhi, like many lenders in China's shadow banking sector, had been actively financing large property developers.

According to Reuters, the shadow banks operate by pooling savings from households and corporations to provide loans for investments in various sectors, including real estate, stocks, bonds, and commodities.

Reporting by Josh White for Sharecast.com.