Hong Kong stocks closed at their lowest level since mid-2012 on Friday, extending steep declines from the previous day in a holiday shortened week, as index heavyweight HSBC tumbled to a

seven-year low after the company decided to scrap a pay freeze plan aimed at cutting costs due to staff protests.

The Hang Seng Index was down 1.2 per cent or 226.22 points at 18,319.58, the lowest close since June 2012. The index fell 3.9 per cent on Thursday after returning from the three-day Lunar New Year break, posting the worst loss to start a Chinese new year since 1994.

For the week, it was down 5 per cent.

So far this year, the Hang Seng Index has plunged more than 16 per cent, already more than doubling the annual loss of 7.2 per cent it rang up in 2015.

The Hang Seng China Enterprises Index, or the H-shares index, settled 2 per cent lower at 7,505.37.

Sino-British banking giant HSBC Holdings, one of the most-widely held stocks by Hong Kong retail investors, tumbled 2.7 per cent to HK$48.1, the worst level it has seen since April 2009.

HSBC’s chief executive Stuart Gulliver wrote Thursday in a memo that the company would drop a pay freeze announced recently to cut costs, following feedback from its employees.

Gulliver said the company would use the cash from the 2016 bonus pool to fund the pay rises, while also expressing his concerns for the bank’s revenue outlook in 2016 due to uncertainty around the global growth outlook and the interest rate environment.

Among other market movers, Asian life insurer AIA Insurance fell 2.4 per cent to HK$37.25, and Chinese online major Tencent Holdings dropped 1.9 per cent to HK$133.3.

Ben Kwong Man-bun, executive director and head of research of KGI Asia, said the Hong Kong market lacked clear direction and was taking its cue from hobbled overseas markets.

“The global equity market is still under selling pressure. It’s because of the fearful sentiment of investors. They prefer to hold cash rather than assets,” Kwong said.

The broader weakness in regional markets also added to the selling pressure on Hong Kong stocks. Japan’s Nikkei Average finished below 15,000 for the first time in 16 months, down 4.8 per cent at 14,952.6, as the yen, a traditional safe-haven currency, soared against the US dollar.

On Thursday, global stocks entered a bear market, as the MSCI All-Country World Index, a gauge of global stock markets, had fallen more than 20 per cent from its most recent high in May 2015. US and European equities both took a hard hit, spurred by heavy selling in the banking sector on worries negative interest rates and low economic growth could hurt banks’ earnings.

Going forward, analysts said stock markets still face a battery of threats ranging from slow growth, interest rate uncertainty, emerging market turmoil and heightened bad loan risks.

“The global economy is really weak. Even after they did quantitative easing, it seems the central banks have failed to stop the slowdown,” Kwong said.

However, Macau casino stocks bucked the weak trend, after Wynn Macau reported its operating revenues dropped by a less-than-expected 37 per cent in the fourth quarter of fiscal 2015. Shares of Wynn Macau jumped 3.6 per cent to HK$7.77, rival Galaxy Entertainment climbed 3.1 per cent to HK$23.25, and Sands China advanced 2 per cent to HK$24.75.

Offshore oil producer CNOOC also recovered 0.4 per cent to HK$7.48 after crude futures bounced back in international markets.

Chinese stock markets were still closed for the holiday on Friday and will reopen on Monday.

However, some analysts expressed concerns A-shares may catch up with the global stock rout and fall sharply when they start trading next week.

“It’s concerning,” said Li Tao, an analyst for Citic Securities. “The external markets were quite volatile during the Chinese new year break, particularly in the US, where stocks continued falling. The depressed state of the global economy may have a negative impact on the A-shares market.”

With additional reporting by Enoch Yiu and Ben Westcott

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