Hong Kong’s Hang Seng Index continued to rally, however, after a Chinese regulator said it would allow domestic insurers to invest in Hong Kong-listed stocks through a trading link with Shanghai. The China Insurance Regulatory Commission’s announcement came less than a month after Beijing confirmed it would launch the Shenzhen-Hong Kong Stock Connect program within 2016.
Chinese investors have plowed into the Hong Kong market partly to hedge against the falling yuan. The Hang Seng HSI, +0.75% is up 0.8% for the week and has risen nearly 20.6% in the past six months, making it is the best-performing major benchmark in Asia for that period.
In contrast, the Shanghai Composite Index SHCOMP, -0.55% ended Friday 0.6% lower, with the tech-heavy Shenzhen Composite Index closing down 0.7%. The declines came as China released data confirming its producer prices continued to drop in August, signaling flagging demand in the world’s second-largest economy, albeit at a slower pace.
South Korea’s Kospi SEU, -1.25% benchmark tumbled 1.3% after the U.S. Geological Survey said it detected a magnitude 5.3 earthquake in North Korea, with Pyongyang later confirming it had exploded a nuclear warhead.
At its nadir Friday, the South Korean won USDKRW, +0.14% dropped to 1,102.30 to the U.S. dollar, a near 0.9% decline from Thursday’s closing level of 1,092.6. The won was last down 0.3% against the dollar.
Read: Defiant North Korea carries out fifth nuclear test
North Korea conducted a fifth nuclear test Friday, drawing strong condemnation from Asian leaders.
Australia’s S&P/ASX 200 XJO, -0.87% slipped 0.9% amid broad declines in commodity prices Friday. Copper was down 0.6% Friday, aluminum was lower by 0.2% with nickel down 0.5% and zinc off 0.7%.
Meanwhile, Japan’s Nikkei Stock Average NIK, +0.04% ended about flat as the yen appreciated against the U.S. dollar in Asian trade, balancing overnight declines. A stronger yen makes Japanese exporters less competitive.
The North Korean test put a worrisome spin on Asian markets with traders already fretting about the European Central Bank’s decision Thursday not to expand its stimulus program, defying expectations.
ECB President Mario “Draghi’s announcement upset the punters,” said Khiem Do, head of Asian Multi Asset at Baring Asset Management Ltd. Analysts said markets had accelerated on expectations that the ECB would announce a plan to buy equities as it had largely run out of bonds to buy.
The ECB’s non-action fed into views that central banks globally were rethinking their many aggressive market-boosting measures.
“It seems the recent deterioration in survey and inflation data is still not enough to push the ECB to ease further,” said Timothy Graf, head of macro strategy at State Street Global Markets EMEA. “We were expecting some language that would help prepare the market for easing later this year.”
The U.S. Federal Reserve and the Bank of Japan’s next policy meetings wrap on Sept. 21.
Meanwhile, the Bank of Korea kept its base rate unchanged for a third straight month on Friday and the latest data from China showed consumer inflation slowed in August. India is scheduled to issue data on industrial production later Friday.