Hong Kong and China markets limp into the weekend after bruising week of declines, shattered optimism
Markets in Hong Kong and China register worst-ever debut week to a new year
Hong Kong and mainland China equity markets face major uncertainties in the upcoming trading week, even as Beijing has extended unorthodox measures to help restore confidence.
Friday’s trading session saw a return of orderly markets, even modest gains that helped pare the scale of the cumulative losses over the week, but there was little doubt that China markets had suffered a damaging blow in the eyes of domestic and international investors.
“We reiterate our cautious view on A-shares and suggest investors to stay on the sidelines, given the rising market volatility and uncertainty,” said Aidan Yao, senior emerging Asia economist at AXA Investment Managers.
The Shanghai Composite Index rose 2 per cent on Friday to end the week at 3,186.41, its worst weekly drop since August.
In spite of the rebound, cumulative losses for the week tallied more than 10 per cent, wiping out a 9.4 per cent gain for the index in 2015.
The benchmark CSI300 also rose 2 per cent on Friday to closed at 3,361.56, bringing its decline for the week to 10 per cent. Shenzhen’s main share index ended Friday with a 14.3 per cent decline for the week, while ChiNext lost 17.1 per cent over the five trading days, its worst weekly performance since launch in 2010.
Friday’s session saw the Hang Seng Index rise 0.6 per cent to end at 20,435.91. For the week the index shed 6.5 per cent, or 1,429 points, reflecting its worst weekly drop since September 2011.
Brokers said the National Team - the China Securities Finance Corporation and other state-owned brokerages - had intervened to prop up the market. In addition, the China Securities Regulatory Commission Thursday night suspended the circuit breaker system launched on Monday. The mechanism, intended to help calm markets during periods of excessive selling, was designed to halt trade when the CSI300 moved in an abnormal range from the previous sessions’ closing level. Mainland equity markets were halted from trade for the full day by the circuit breaker on Monday and Thursday as the CSI 300 plummeted beyond the 7 per cent threshold.
“We are now seeing synchronized movements in onshore equity and currency markets, with signs that a negative spillover is hitting other Asian and developed markets – a phenomenon similar to last August. Hence, it is not surprising that the authorities are taking actions,” Yao said.
“Looking ahead, we think that policy actions are key to dispel the prevailing bearish sentiment.”
Louis Tse Ming-kwong, director of VC Brokerage, said global investors were monitoring the weakening yuan with an eye towards what it indicated about the health of already-slowing mainland economy.
“As long as the yuan goes weaker, investors do not have confidence to buy in the mainland A-share markets,” Tse said.
The yuan stablish on Friday after hitting five year lowest on Thursday.
For the week, the offshore yuan fell by 1.75 per cent per US dollar. The currency shed 5.67 per cent against the US dollar last year. Analysts estimates vary on the outlook this year, but some believe it may further weaken by a further 10 per cent.
On Thursday the CSRC announced new rules that will cap share sales by major stakeholders or senior company executives at 1 per cent or less of the company’s total shares every three months. They will also need to announce their sale plan 15 days ahead of the transaction. A six-month ban on share sales by major stakeholders, imposed as a market-calming measure during the summer sell-off, expired Friday.
The People’s Daily published a commentary on its microblog Thursday night about the CSRC decision saying: “We have to realise the distance between theory and reality when talking about any system that looks beautiful without considering the social function.”
Brett Mcgonegal, co-chief executive of Reorient Group, supported Beijing to remove the circuit breaker rule.
“I am a firm believer that markets don’t need and should not have circuit breakers as I think the stock market is the most efficient pricing mechanism in the world when unobstructed.”