China's top newspaper, the People's Daily, last Friday issued an appeal to all of Hong Kong's lawmakers to support a Beijing-proposed election blueprint, saying it was the only way to achieve democracy, after the territory's democrats said they would veto it.
Hong Kong's Hang Seng index fell more than 1% on Tuesday to its lowest close in two months, as investor risk appetite was curbed by political uncertainty and concerns over the impact of a possible US interest rate rise later this year.
Analysts also attributed the market's weakness to a possible inclusion of mainland shares into MSCI's global indexes, a decision that could prod global investors to increase China exposure, but reduce Hong Kong's stock weightings.
The Hang Seng index fell 1.2%, to 26,989.52, the lowest close since April 9. The China Enterprises Index lost 1.8%, to 13,861.96 points.
"The problem with this market is that there's no fresh money flowing in," said Chen Zhizhong, strategist at China Merchants Securities.
"The MSCI move could affect Hong Kong stocks negatively; foreign interest in Hong Kong stocks is subdued by an expected Fed rate hike later this year; and mainland investors are looking on the sidelines amid political uncertainty."
A plan for 2017 leaders to be elected by universal suffrage is scheduled to be voted on by legislators in Hong Kong in mid-June.
China's top newspaper, the People's Daily, last Friday issued an appeal to all of Hong Kong's lawmakers to support a Beijing-proposed election blueprint, saying it was the only way to achieve democracy, after the territory's democrats said they would veto it.
Most sectors in Hong Kong fell on Tuesday, led by service stocks, which slumped amid deepening concerns over the Middle East Respiratory Syndrome (MERS).
Goldin Properties Holdings Ltd shares slumped 9.7%, after the securities regulator urged investors on Monday to exercise "extreme caution" in trading the stock as the majority of the firm is held by a small group of investors.
Its sister firm, Goldin Financial Holdings also fell 3.4%.
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