Mainland sell-down rattles H shares
China stocks drop further as investors flee overheated market in Shanghai
H shares dropped yesterday for the second consecutive day, following the dive in the mainland's A-share market, as investors cashed in their profits from the recent rally that pushed the markets to record highs.
The Hang Seng China Enterprises Index fell as much as 3.95 per cent to 9,938.55 points in early trading before climbing back to close at 10,235.46, narrowing the loss to 1.08 per cent or 112.21 points. This raised the loss for the past two days to 4.93 per cent.
The decline came after a slump in the mainland market, with the Shanghai Composite Index yesterday sliding 2.74 per cent to close at 2,641.33 points.
It was the index's biggest correction since the bull market began in November as investors feared a near-term bubble.
'Further upside is limited as the A-share market has been overheated for a time,' a fund manager said. 'It's a bit crazy as the market's price-earnings ratio had already surpassed 33 times by the end of last year, much more expensive than other mature markets.'
The Shanghai index has gained 40 per cent in two months on the back of strong liquidity, the success of state share reform and the potential appreciation of the yuan.
'Valuation of the overall [A-share] market is becoming much less attractive since the recent rally, in terms of both price-earnings and yield gap,' said Vincent Chan, a research analyst at Credit Suisse.
The A-share market's outstanding performance last year was unlikely to be repeated this year, Mr Chan said.
In Hong Kong, mainland insurers and oil companies led the H-share slump. Ping An Insurance had the sharpest fall of 9.05 per cent to HK$39.70, followed by PICC Property and Casualty's 4.04 per cent loss to HK$4.51 and China Life Insurance's 3.33 per cent tumble to HK$26.10. PetroChina dropped 1.32 per cent to close at HK$10.46 amid falling oil prices.
Taifook Securities managing director and chief executive Peter Wong Shiu-hoi said investors tended to cash in on high-priced stocks amid a long rally without a big correction. He expected investors would continue to take profits for a while, increasing volatility.
Despite the recent weakening of the Hong Kong dollar, Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong yesterday said he had not noticed any capital outflows. He also said the A and H shares were moving in the same direction because even though they were traded in two separate markets, they represented the same mainland companies.
The H-share slump ultimately had little impact on a roller-coaster session for the blue-chip Hang Seng Index. It sank to as low as 19,757.24 points in morning trading and rebounded later in the day to close at 20,211.28, up 0.93 per cent.
Turnover remained heavy at HK$70.65 billion, below Thursday's HK$76.51 billion, which was the second highest on record.
The index was supported mainly by developers including Sun Hung Kai Properties and Cheung Kong (Holdings).
'Aggressive land-banking during the recession years by major developers, such as Sun Hung Kai Properties and Cheung Kong, will begin to pay off as demand for properties improves,' UBS managing director Andrew Look said.