China Stock Turmoil 2015

Hong Kong stocks jump to strong finish after week-long slump and in front of US rates verdict

Hang Seng Index up 2.1 per cent by close of business; Chinese shares mixed in subdued trading

PUBLISHED : Wednesday, 16 December, 2015, 9:20am
UPDATED : Wednesday, 16 December, 2015, 6:09pm

Hong Kong shares boomed to a strong close ahead of Wednesday’s expected United States interest rate rise, as the market came off a record nine day losing streak in a shortcovering surge while Chinese stocks ended virtually flat.

A jump in oil sector prices, boosted by a Chinese government announcement suspending fuel price adjustments, also buoyed local markets and caused oil producer shares to jump.

The Hang Seng Index rose the most in almost two months in early trading and did not let go of its gains for most of the day, closing up 2.01 per cent to 21,701.21.

In Shanghai and Shenzhen the reaction to both the imminent rate rise by the US Federal Reserve and the oil stock decision by Beijing was muted, mostly as the result of a late afternoon fall across all markets.

The Shanghai stock composite finished the day at 3,517.05, up a measly 0.19 per cent, with material and energy stocks giving it the most support throughout Wednesday.

The large-cap CSI300 was pushed lower in the afternoon to end down 0.24 per cent at 3,685.43.

In Shenzhen, stocks crept up 0.68 per cent to 2,280.11, while Chinext followed suit to finish up 0.63 per cent to 2,763.11.

VC Brokerage director Louis Tse Ming-kwong said a lot of market movement had been due to a broad readjustment after Hong Kong shares fell for nine days straight, the longest streak in decades.

“There’s bound to be quite a bit of repositioning in the markets,” he said. “If I was trading in the market, I would do covering today... They’re all doing it for tomorrow.”

But Tse said there had also been some consolidation in preparation for the effects of the possible interest rate increase in the United States.

“Either way, rise or not, they’re covering their positions,” he said.

The Federal Reserve’s decision will be announced in a statement at 3 am on Thursday morning, Hong Kong time, and a rise in the Fed fund rate would see the first tightening cycle underway in nearly a decade, in contrast to loosening policies launched in Japan and the Eurozone.

In anticipation of the US interest rate rise, the Chinese authorities moved the yuan midpoint higher for the 8th day in a row.

“It’s pretty clear that the Chinese authorities are pre-empting the Fed by weaking the currency, which while altogether weaker versus the USD has been relatively firm versus its Asian peers,” FxPro chief economist Simon Smith wrote.

Smith said the effect of the rise on the US dollar, and consequently the Hong Kong dollar, would depend on the style of the announcement, with the press briefing by Fed Chair Janet Yellen just as closely watched as the decision itself in proving guidance if another rate increase and how many are in the cards in 2016.

Meanwhile, oil stocks jumped on the back of an almost three per cent rebound in crude oil prices overnight in the United States and Beijing’s announcement late on Tuesday to suspend domestic fuel price adjustments indefinitely in a move that would bolster profit margins of oil refiners, contain excessive oil demand growth and choking fight air pollution which has engulfed major Chinese cities such as the capital of Beijing and the financial hub of Shanghai.

Oil producer CNOOC closed 3.4 per cent higher at HK$8.17, while oil producer and refiner China Petroleum & Chemical (Sinopec) jumped 7.3 per cent to HK$4.69 and rival PetroChina gained 4.95 per cent to HK$5.3.

Ratings agency Moody’s on Tuesday announced it had downgraded the outlook for beleaguered Fosun International to negative, citing “uncertainty over the company’s ability to address the refinancing of its high levels of short-term debt and the funding of its investments.”

In Hong Kong trading, Alibaba Pictures Group shares jumped 5.56 per cent to HK$1.90 after the firm announced it had gone into a partnership deal with Fosun International and US investment group Sequoia Capital to acquire Chinese film distribution firm Bona Film Group for US$86 million.

Fosun International shares rose 1.54 per cent to HK$11.84 although the stock is still down around 10 per cent in three trading sessions since the reappearance of the firm’s chairman Guo Guangchang.

In Asia, most of the region’s benchmarks matched the strong performance of Hong Kong.

Japan’s Nikkei 225 index jumped 2.6 per cent to close at 19,049.91 and South Korea’s Kospi climbed 1.8 per cent to 1,969.40. Australia’s S&P/ASX 200 added 2.4 per cent to 5,028.40. Benchmarks in Taiwan, Singapore, the Philippines and Indonesia also posted gained.