China, HK stocks down as escalating Middle East conflict sap sentiment

China and Hong Kong stocks fell on Thursday as investor risk appetite waned amid little sign that the United States-Israel and Iran will quickly end hostilities in the Middle East.

China's blue-chip CSI300 Index .CSI300 dropped 1% by the lunch break, while the Shanghai Composite Index .SSEC lost 0.6%. Hong Kong benchmark Hang Seng .HSI was down 1.2%.

Energy shares outperformed, with onshore and offshore energy gauges up 2.3% and 2.8%, respectively, and the Coal Index .CSI000820 gaining 4.1% after Brent crude jumped past $100 a barrel.

Iran set ablaze two tankers in Iraqi waters as it stepped up attacks on oil and transport facilities across the Middle East, warning the world should be ready for oil at $200 a barrel in defiance of President Donald Trump's claim that the U.S. had already won the war.

UBS analysts said in a client note that investors generally see a dramatic oil spike, such as $200 per barrel, as unlikely without a major disruption.

They added that investors have been taking profits on war-linked metals trades, including copper and aluminium, while selectively adding to undervalued stocks on the view that most macro risks are priced in and any easing in geopolitical tensions could support a gradual recovery in valuations.

Onshore non-ferrous metal .CSISNMIM shares fell 1.6%, while artificial intelligence stocks .CSI930713 slipped 1.4%.

The CSI Rare Earth Index .CSI930598 fell 2%.

Hong Kong shares of Guotai Junan International 1788.HK and Citic Securities 6030.HK fell 5% and 3%, respectively, after media reported Hong Kong authorities had raided the two brokerages this week.

-Shanghai Newsroom and Eileen Soreng/Reuters