Hong Kong Stocks Slide As Markets Fear Losses in UBS-Credit Suisse Deal While Huarong Slumps on US$4 Billion Loss Alarm

• The forced merger between UBS and Credit Suisse will impose losses on some investors in one of the latter’s riskiest capital instruments
• China Huarong flags a US$4 billion loss amid erosion in value of assets and smaller income from managing distressed assets

Hong Kong stocks fell to a three-month low amid concerns about widening global financial crisis following losses imposed on investors in the forced merger between UBS and Credit Suisse. China Huarong slumped after a profit warning.

The Hang Seng Index tumbled 1.8 per cent to 19,173.94 at 10.25am local time, the lowest level since December 21. The Tech Index slipped 1.8 per cent while the Shanghai Composite Index gained 0.3 per cent.

HSBC retreated 4.5 per cent and AIA Group weakened 2.4 per cent to HK$77.05. Alibaba Group lost 2.1 per cent to HK$79.75 while Tencent declined 1.4 per cent to HK$334.60. Sunny Optical dropped 1.9 per cent to HK$88.30 and WuXi Biologic crashed 5.6 per cent to HK$45.30.per cent as both prepare to release their earnings results this week.

UBS Group agreed to buy Credit Suisse for 3 billion Swiss francs (US$3.25 billion) with liquidity backstop from the central bank, valuing the target at less than half of its market value. The merger, brokered by the Swiss government to contain a crisis of confidence, will wipe out investors in one Credit Suisse’s riskiest securities.

The Hang Seng Index has retreated 1.4 per cent so far this month amid the Credit Suisse turmoil and several US bank failures including Silicon Valley Bank. The benchmark index’s 76 members have lost US$433 billion of capitalisation since its reversal from this year’s peak on January 27, as the China reopening euphoria ended.

Elsewhere, bad-debt management company China Huarong Asset Management crashed 4.5 per cent to HK$0.41 after the company said it expected a net loss of 27.6 billion yuan (US$4 billion) in 2022, citing erosion in asset values and smaller income from acquisition-and-restructuring of distressed assets.

Asian markets retreated as the weekend crunch talks in Switzerland failed to assuage investors. The Nikkei 225, Kospi and S&P/ASX 200 fell by 0.2 per cent to 0.6 per cent.