Hong Kong stocks dive as protests rumble, China anger builds

Residential and commercial buildings in the Kowloon district (foreground) with the skyline of Hong Kong Island past Victoria Harbour in the distance. (Photo: AFP / Anthony Wallace)

The increasingly violent unrest in the key financial hub comes as world markets are hit by fears about the global economy and dimming hopes for trade talks between China and the United States.

In the latest development, Hong Kong's busy international airport was forced to cancel hundreds of flights in and out on Monday as thousands of demonstrators descended, stranding thousands of passengers.

Hundreds of flights were still listed as cancelled at the airport, one of the world's busiest, as protesters returned Tuesday to block passengers from reaching departure gates.

The abrupt closure came 10 weeks into a crisis that has seen millions of people take to Hong Kong's streets in the biggest challenge to Chinese rule of the semi-autonomous city since its 1997 handover from Britain.

Hong Kong's Beijing-backed leader Carrie Lam has ruled out making concessions and on Tuesday she warned that violence would push the city down a "path of no return".

That came a day after China described violent protests as "terrorism", which analysts said raised concerns among investors.

Stephen Innes, managing partner at VM Markets, said: "Dropping the 'T' word is particularly disturbing as it does suggest a more aggressive mainland response, which triggered a wave of risk aversion across global markets."

The Hang Seng Index ended down more than two per cent.

"SITUATION WILL GET WORSE"

Losses were across the board, with carrier Cathay Pacific shedding more than 4 per cent as it was hit by the cancellation of several flights.

It had already lost almost five per cent on Monday after Beijing banned airline staff supporting Hong Kong protesters from flights going through the mainland. Cathay parent Swire Pacific was down 1.76 per cent on Tuesday, a day after losing more than six per cent.

MTR Corp, which runs the city's subway network that has seen a number of high-profile violent clashes between protesters and police, was down 3.87 per cent.

Among other firms casino operators were hurt by worries about visitor numbers with Galaxy Entertainment off 5.84 per cent and Sands China diving 3.59 per cent.

There were also big losses for property giants. Sino Land shed 1.77 per cent, Henderson Land fell 2.81 per cent and New World Development was off 1.60 per cent.

Market heavyweight and tech giant Tencent retreated 1.76 per cent while insurer AIA slipped 2.97 per cent.

The long-running demonstrations have had an impact on the city's economy, with the crucial shopping sector being hammered - data showed retail sales sank a much more than expected 6.7 per cent on-year in June.

And the economy expanded just 0.6 per cent in the second quarter, well short of forecasts.

And there were warnings for more trouble ahead for the Hang Seng.

"It looks like the situation will get worse," Airy Lau, investment director at Fair Capital Management. "Together with the higher global recession risk from US-China friction, the Hang Seng Index is likely to have 5-10 per cent more downside."