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Hong Kong joins the world in stock sell-off but China rallies with a little help from...

PUBLISHED : Thursday, 14 January, 2016, 9:15am
UPDATED : Thursday, 14 January, 2016, 6:53pm

Hong Kong stocks fell on Thursday as gloomy global economic outlook continued to weigh on sentiments but Chinese markets managed to buck the trend with a sharp recovery after a three-day losing streak, with regulators clamping down on share sales.

US markets tumbled overnight followed by a region-wide slump as investors switched out of shares for safer assets amid the continuing plunge in oil prices. Hong Kong’s benchmark Hang Seng Index closed down 0.59 per cent to 19,817.41, the lowest level in more than three years. The H-share Index tracking China-based companies slipped 0.41 per cent to 8,459.63.

Brokers said the Hang Seng Index is likely to hover around 19,000 to 20,000 until risk appetite improves. Investors are “staying on the sidelines” while those still active in the markets are gravitating towards more defensive stocks, said Ben Kwong Man-bun, executive director at brokerage firm KGI Asia.

“Cash is king” at the moment, said Francis Lun, chief executive of GEO Securities in Hong Kong.

Investors pessimistic about the global economy are unlikely to start buying again until markets fall further, Lun said, adding that in Hong Kong, that means the 19,000-level.

Chinese stocks, however, rallied after plunging to the lowest point since last summer’s sell-off. The benchmark Shanghai Composite Index rose 1.97 per cent to close at 3,007.65 while the CSI300 Index was up 2.08 per cent at 3,221.57. The Shenzhen Composite Index rose 3.81 per cent to 1,859.37 but the biggest winner was the Nasdaq-style ChiNext Index in Shenzhen, which shot up 5.59 per cent.

More than 28 companies listed on the tech-heavy ChiNext board, including Shenzhen-based automaker BYD, said their major shareholders will not sell off their stakes in the near future. BYD advanced 4.43 per cent to 59.9 yuan in Shenzhen. Its Hong Kong-listed shares closed 2.17 per cent higher at HK$37.6.

Companies including Qingdao TGOOD Electric, and EVE Engery also said in their statements that they will try to help stabilise the stock market.

In a notice issued late Wednesday, Shanghai and Shenzhen exchange authorities reiterated they will monitor stock offloading by major shareholders. The Shanghai Stock Exchange said it would check if selling by major shareholders “disturb the normal trade order” and “once discovered, the regulator will adopt related measures in accordance”.

“This is ridiculous market intervention. How can you stop major shareholders from selling stocks? It is their right to do so,” said Eric Wu, a private equity analyst based in Shanghai.

“In any case, it may work in the short term as investors know the major shareholders can't sell, but do not expect this intervention to support the market for long without a substantial recovery in the fundamentals.”

The People’s Bank of China also conducted 160 billion yuan (US$24 billion) of seven-day reverse-repo agreements in its open-market operations, pumping more cash into the system as part of the broader efforts to prop up the market.

Markets across Asia were a sea of red on the day. Japan’s Nikkei 225 index declined 2.68 per cent to 17,240.95 while Singapore’s Straits Times index was off 1.93 per cent at 2,644.57 and Australia’s ASX 200 index was down 1.57 per cent to 4,909.38.

The sell-off in the US stocks intensified overnight, with the Dow Jones index tumbling more than 360 points to 16,151.41, a fall of 2.21 per cent, bringing the loss for the large-cap index this year to 7.31 per cent. The S&P 500 index, which tracks a broader range of companies, fell 2.50 per cent to 1,890.28, with both indices returning to levels last hit in September. Nasdaq also fell sharply, dropping 3.41 per cent to 4,526.06.

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