Daily Report

Shanghai stocks ease ahead of forex reserves data, Hong Kong breaks trend to notch modest gain

Hang Seng ends session 0.3 per cent higher, while Shanghai Composite sheds 1.4 per cent

PUBLISHED : Thursday, 07 April, 2016, 9:10am
UPDATED : Thursday, 07 April, 2016, 7:36pm

Hong Kong and Shanghai stocks traded mixed on Thursday, with the mainland markets putting in their worst performance in a week, while Hong Kong stocks were little changed, as investors in both markets looked ahead to the after-hours release on China’s foreign exchange reserves.

The Shanghai Composite Index slipped 1.38 per cent, or 42.17 points to 3,008.42, led lower by technology-related shares. The decline marked the biggest drop this week after the Shanghai benchmark index surged to a three-month high on Tuesday. The CSI300 Index, which tracks large companies listed in Shanghai and Shenzhen, closed down 1.48 per cent, or 48.24 points to 3,209.29.

The Shenzhen Composite Index shed 1.60 per cent to 1,930.26, while the Nasdaq-style ChiNext dropped 2.11 per cent to 2,248.68.

The Hang Seng Index moved up 0.29 per cent, or 59.38 points to 20,266.05. The Hang Seng China Enterprises Index declined 0.25 per cent, or 21.30 points to 8,647.33.

Hong Hao head of research at investment bank Bocom International said that investors were taking profit ahead of China’s announcement on the foreign exchange reserves on Thursday amid concerns the data might show intensified capital outflows.

“Capital outflow has been quite strong since last year,”said Hong. “People probably want to take some chips off the table before the number comes out....The market’s still trying to find a direction.”

Data released after the market close showed that foreign exchange reserves had risen for the first time in five months to US$3.21 trillion (HK$24.9 trillion) in March.

China’s foreign exchange reserves had been shrinking since it peaked at US$3.99 trillion on June 2014.

Victor Au, chief operating officer at Delta Asia Financial, said China’s recent economic data had also brought stability to the mainland financial markets, but concerns remain.

“However, the trend of weak China economic growth does not change,” Au said. “The momentum of China’s economic rebound faces risks including inflation expectations.”

Bocom’s Hong said it was surprising to see the Hang Seng Index had outperformed its mainland counterpart given that the two markets are driven by the same sectors.

“It shows that international investors are more interested in the Hong Kong market than domestic investors,” said Hong.

Daiwa Capital Markets analyst Kevin Lai cautioned that Hong Kong was vulnerable to a sharp decline in housing and other asset prices similar to the economic downturn that began in the late 1990s, which ended a long period of rapid economic growth in the city.

“The world is about to embark on a major dollar debt deleveraging process, in our view, and as

that happens, the city will almost certainly come under enormous stress,” Lai said in a research note Thursday.

In the Hong Kong market, four of the five most active shares fell Thursday, apart from Tencent, which rose 1.76 per cent.

ZTE, which sells smartphones and networking gear throughout Europe and Asia, plummeted 10.31 per cent to end at HK$12.7 as trading resumed for the first time in a month since the US Commerce Department imposed export restrictions of the company for allegedly selling its technology to Iran in violation of a trade sanctions.

ZTE‘s turnover was HK$941 million.

In other action, HSBC Holdings fell to fresh multi-year low, easing 0.3 per cent to close at HK$45.80. China Mobile advanced 1.6 per cent to HK$86.25. Energy related shares performed well in the wake of stronger overnight crude oil prices. Cnooc rose 2.2 per cent, while PetroChina added 0.6 per cent and Sinopec gave up 0.2 per cent.