Stocks dive on China, E.U. fears

PUBLISHED : Wednesday, 19 October, 2011, 12:00am
UPDATED : Wednesday, 19 October, 2011, 12:00am

Hong Kong's stock market resumed its downward slide again yesterday, with the benchmark Hang Seng Index suffering its fifth-largest fall this year after a warning about the euro-zone crisis by Germany spooked investors.

Also, Beijing yesterday said third-quarter gross domestic product grew 9.1 per cent, slower than the 9.5 per cent pace in the previous quarter.

'We won't have a definitive solution this weekend,' German Finance Minister Wolfgang Schauble said, referring to this Sunday's European Union summit on the debt crisis.

Investors had hoped that European leaders, scheduled to meet on Sunday, would shore up confidence in the region's troubled debt markets and banks.

But Germany's cautious remarks flummoxed investors, leading to a sell-off of equities in the United States and Europe overnight. Consequently, the gains over the past week have been erased, and the Hang Seng Index fell through 18,000 points at one stage to dip to 17,963 yesterday, before regaining some lost ground.

The Hong Kong benchmark yesterday ended down 4.23 per cent or 797.53 points at 18,076.46 - the fifth-largest decline this year.

Other Asian markets also declined: Japan's Nikkei slid 1.55 per cent and Australia's S&P/ASX 200 lost 2.07 per cent. The Shanghai Composite Index finished down 2.33 per cent at 2,383.49 points.

'Any rebounds are likely to be short-lived until investors see a solution to the euro-zone debt problems,' said Alvin Cheung, associate director with Prudential Brokerage.

Capital flowing into stocks has been thinning as risk aversion grows. Total turnover on Hong Kong stocks yesterday was just HK$63 billion, down 11.4 per cent from the HK$71.14 billion in average daily turnover for securities listed on the main board and growth enterprise markets last month. Of the 46 stocks in the blue chip index, all but two ended in reverse. Local tycoon Cheng Yu-tung's property flagship New World Development was the biggest loser yesterday, plunging 17.56 per cent.

Beijing-backed Citic Pacific was the second-worst performer on the Hang Seng, losing 11.83 per cent, while Aluminium Corporation of China (Chalco), another state-owned firm, was the third-worst performer with a loss of 10.58 per cent. The Hang Seng Index has lost a total of 19.25 per cent since January, and investors remain bearish about Hong Kong equities because of the mainland's slowing economic growth and Beijing's tight monetary policy.

A Hang Seng Bank report yesterday said the mainland economy was growing more slowly because of persistent monetary tightening and weak global growth.

It predicts that monetary conditions would remain tight while inflation remains elevated.

Shares in mainland banks and property developers have been hit hard since July, and many have been targets of short sellers, according to statistics from Data Explorers, a London-based research company.

Chalco was the most shorted stock, followed by China Overseas Land and Investment in second place.

Short sellers usually borrow shares, sell them, and then buy them back at a lower price, repaying the loan and pocketing the price difference. Several major bourses have banned the practice, blaming it for roiling markets globally.


The HSI Volatility Index climbed to this level yesterday, indicating options traders expect a swing of 11 per cent in the benchmark index


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