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Mainland China and Hong Kong markets diverge as investors remain cautious

Soft energy prices add to grim outlook as investors wait for signals from annual National People’s Congress meeting

PUBLISHED : Wednesday, 24 February, 2016, 9:29am
UPDATED : Wednesday, 24 February, 2016, 5:35pm

Mainland China’s A-share market took a roller-coaster ride on Wednesday, ending with small gains, as investors remained divided on the economic outlook ahead of the annual meeting of the National People’s Congress (NPC), where deputies will sign off on the nation’s next five-year plan.

Hong Kong’s market fell after Financial Secretary John Tsang Chun-wah remarked on the bleak economic outlook in his budget speech. The market was also dragged lower by soft oil prices, and disappointing earnings from banking giants including Standard Chartered.

READ MORE: Our live blog as Financial Secretary John Tsang Chun-wah delivers his ninth budget speech

The Shanghai Composite Index closed up 0.88 per cent or 25.56 points at 2,928.90, after falling more than 1 per cent after the lunch break, bolstered by blue chips in transport, shipping, metals and utilities. Turnover expanded rose to 227.9 billion yuan (HK$270.9 billion), from 211.5 billion yuan on Tuesday.

Alex Fan, managing director of GF Securities in Hong Kong, said investors had adopted a wait-and-see attitude before signals from the NPC meeting.

“Both the mainland and Hong Kong markets seem relatively quiet recently and investors are waiting for directions from Beijing, from the next European Central Banking meeting due on March 10, and of course the next meeting by the US Federal Reserve on March 15,” he said.

Analysts with Bank of America Merrill Lynch said they did not expect much in the way of policy surprises from the NPC meeting, which begins on March 5.

“We are more hopeful for major reform breakthroughs during the 13th five-year plan (2016-2020), especially after 2017 when the once in every five years government reshuffling is done,” they said in a note issued on Wednesday.

We are more hopeful for major reform breakthroughs during the 13th five-year plan
Bank of America Merrill Lynch

Hong Kong’s Hang Seng Index closed 1.15 per cent or 222.33 points at 19,192.45. The Hang Seng China Enterprises Index lost 108.91 points, or 1.33 per cent to 8,061.71.

Among the big movers, Standard Chartered Bank shares were hammered, falling 6.28 per cent to HK$44.75, after the bank announced a US$1.5 billion pre-tax loss for 2015, its first in more than a quarter of a century.

Fitch Ratings said on Wednesday it had a “negative” rating outlook on the bank, noting downside risks in management restructuring plans unveiled in November.

“If it can successfully implement its new strategy, the outlook could be revised but this looks increasingly challenging given the strong external headwinds and the scale of the transformation,” Fitch’s senior director, banks, Sabine Bauer said.

Ample Capital Asset Management director Alex Wong said indications on Tuesday of a prolonged period of weaker global energy prices and softening global activity, added up to a grim outlook for Hong Kong.

“Overall sentiment is very cautious and actually it is trading with downside bias ... we don’t have too much upside,” he said. “People aren’t willing to chase the decline yet but if we see any negative catalysts then we might see a downturn.”

Wong said traders were shorting property stocks in the expectation the government would not change the status quo on stamp duties designed to cool the property market.

“If things turn out as expected, then the government stays put on these policies, we may see some decline in property stocks,” Wong said. “People are not expecting too much stimulus or other things.”

The mainland’s CSI 300 Index, tracking Shanghai and Shenzhen blue chips, added 0.65 per cent to 3,109.55. The Nasdaq-style ChiNext Index eased 0.65 per cent to 2203.74. The Shenzhen Composite Index closed 0.04 per cent lower at 1,876.47.

Additional reporting by Ben Westcott

yu.xie@scmp.com