HK stocks feel the backlash of metals sell-off
Investors exiting emerging markets and commodities trigger 3.1pc drop in index
Hong Kong's stock market index plunged below 16,000 yesterday in the biggest one-day drop in more than two years, amid concern over rising global interest rates and slumping commodity prices.
The declines were exacerbated by a worldwide flight from emerging market stocks that saw the benchmark Morgan Stanley Capital International Emerging Market Index fall for a 10th day, its worst losing streak in eight years. The index has fallen more than 10 per cent from its record set on May 8.
The blue-chip Hang Seng Index fell 507.84 points, or 3.11 per cent, to 15,805.52, its biggest one-day drop since May 10, 2004.
Turnover was heavy, with $39.94 billion worth of shares changing hands, up by a third from Friday's $29.41 billion turnover.
Shares of mainland companies traded in Hong Kong, which have escaped much of the worst of the recent routs, also fell sharply. The H-share index plunged 398.29 points, or 5.66 per cent, to end the day at 6,644.02, with China Life slumping 8.17 per cent to $11.80 and PetroChina dropping 5.68 per cent to $8.30.
Investors took flight after the People's Bank of China said it would step up efforts to rein in lending and investment on the mainland.
Dealers said yesterday's decline was triggered by a steep and wide-ranging drop in commodity prices. Matters worsened when the once red-hot Indian market slumped, triggering a one-hour trading halt.
The benchmark Bombay Sensex Index plunged more than 10 per cent in intraday trading, before recovering to close down 4.2 per cent. In Japan, the Nikkei 225 slid 1.84 per cent, while South Korea's Kospi Index dropped 2.46 per cent.
'The sharp falls in precious metals have triggered a regional correction and the trading halt of the Indian market has pushed fund managers to cash [in] their holdings in other markets,' SG Securities trader Andrew Clarke said.
'During the Indian trading halt, the Japan and Korea markets had already closed. Fund managers thus turned their fingers to the highly liquid Hong Kong market, spurring the afternoon sell-off.'
Dealers said Hong Kong investors dumped stocks across the board, with index heavyweight China Mobile falling 5.63 per cent to $40.25, while HSBC slid 3.25 per cent to $133.80.
Commodity stocks were the worst hit, however. Gold miner Zijin Mining plunged 13.8 per cent to $3.75, while Lingbao Gold plummeted 16.39 per cent to $7.65. Spot gold fell to US$637.55, its lowest level so far this month, down US$20.05 from Friday's New York close. Silver and copper fell for a fourth day, while oil prices slumped to their lowest in six weeks.
Mr Clarke said the Hang Seng Index was likely to test the 15,600 support level and wouldn't rule out further declines. 'The biggest problem is some fund managers start to worry about clients' redemptions and do not dare to buy at this level even if they think it's attractive.'
The pending $76.7 billion initial public offering by the Bank of China also contributed to the market decline, since cash tied up in orders drained liquidity.
'The market expects BOC's offering to tie up about $300 billion,' Tung Tai Securities associate director Tang Sing-hing said. 'Liquidity has been tightened and fewer investors can buy even if the market is currently at a low level.'
Some observers regard the recent market slides as little more than a predictable fallback after a strong bull run. 'It's time for a healthy correction,' said Mohan Singh, head of Hong Kong research at BNP Paribas.
The Hang Seng Index has fallen 1,496.27 points, or 8.64 per cent, since reaching a near-five-year high of 17,301.79 on May 8.
