Hang Seng slides as spike in China cash rates causes jitters

Hong Kong shares tumble 1.4pc amid fears the PBOC may tighten liquidity following a mid-morning spike in China's short-term money rates

PUBLISHED : Wednesday, 23 October, 2013, 5:54pm
UPDATED : Wednesday, 23 October, 2013, 6:07pm

Hong Kong shares dropped sharply on Wednesday, pushed down by weak China markets after a mid-morning spike in the mainland’s short-term money rates aggravated fears the central bank may soon tighten liquidity.

The Hang Seng Index closed down 1.4 per cent at 23,000 points, its lowest close since October 10. The China Enterprises Index of the top Chinese listings in Hong Kong shed 1.8 per cent in its biggest daily loss since August 28.

In a bearish sign that may suggest more falls ahead, both indexes had started the day at highs and closed near lows – tracking a reversal of gains in the A-share market after a sharp rise in China’s benchmark seven-day repo contract in the morning.

China shares dropped more than 1 per cent as investors took profit on the year’s outperformers after short-term money rates spiked on Wednesday as official media said the central bank may soon tighten liquidity.

The CSI300 of the leading Shanghai and Shenzhen A-shares closed down 1.1 per cent at 2,418.5 points, while the Shanghai Composite Index sank 1.3 per cent. Both reversed early gains to post their biggest daily loss in a week.

The Nasdaq-style ChiNext of mainly high growth, penny stocks listed in Shenzhen tumbled 2.8 per cent. It is still up 70 per cent for the year.

It also slid 2.8 per cent on Tuesday in record high volumes as investors unwound positions in counters seen as most driven by speculative trades this year.

With the month-end approaching, money market rates are back in focus, with investors spooked on Wednesday by a sharp rise in China’s benchmark seven-day repo contract in the morning.

A policy adviser to the People’s Bank of China (PBOC) said on Tuesday the authority may tighten cash conditions in the financial system to address inflation risks.

The official China Securities Journal reported on Wednesday that the PBOC may act to prevent liquidity from becoming too loose following an influx of funds on expectation of a higher yuan.

Still the Chinese banking sector outperformed the broader market after Ping An Bank’s robust third quarter earnings. This suggests that the market, while jittery, is not panicking about a repeat of the end-June cash crunch.