Hong Kong, China stocks dragged down by cooling commodity prices and weak yuan

Smartphone assembler FIH Mobile plunges 21 per cent after profit warning

PUBLISHED : Friday, 06 May, 2016, 9:21am
UPDATED : Friday, 06 May, 2016, 5:51pm

Mainland Chinese and Hong Kong stocks tumbled on Friday, with Shanghai-listed shares falling the most in two months as a cooling commodities market and a weak yuan sparked investors’ concerns.

The mainland’s benchmark Shanghai Composite Index closed 2.82 per cent or 84.59 points lower at 2,913.25. The fall was the biggest daily loss since February 29, when stocks dived 2.86 per cent. The CSI 300, which tracks large companies listed in Shanghai and Shenzhen, dropped 2.6 per cent or 83.57 points to 3,130.35.

The Shenzhen Composite Index lost 3.65 per cent to 1,871.61, and the Nasdaq-style ChiNext Index slipped 4.27 per cent to 2,129.19.

In Hong Kong, stocks stayed in negative territory for a fifth consecutive day. The Hang Seng Index closed 1.66 per cent lower, shedding 339.95 points to 20,109.87. The Hang Seng China Enterprises Index slid 1.8 per cent or 155.03 points to 8,471.70.

The unexpected fall in the A-share market [today] led the sentiment in Hong Kong to be more bearish than before
Alex Wong, Ample Capital

Alex Wong Kwok-ying, asset management director of Ample Capital, said the recent correction in commodity prices led to a slump in the mainland markets.

“[The commodities market] was overheated and should not have gone up that much earlier. It was not supported by fundamentals, but by hot money that chased up the rise,” Wong said. “Once speculation cooled off a little bit, now you see the pullback in commodities.”

The mining industry was one of the biggest losers of the day as the sector fell by 4 per cent.

A slide in the mainland currency also had a spillover effect on the stock market, as the yuan dropped to a six-week low, analysts said. For the week, the People’s Bank of China set the yuan reference rate lower by 0.94 per cent.

“A weak yuan has led to worries that China will continue to devalue its currency gradually to help the export sector. The strengthening of the yen against the US dollar, Hong Kong dollar and the yuan this year has also impacted confidence in the stock markets on the mainland and in Hong Kong,” said Louis Tse Ming-kwong, director of VC Brokerage.

In Hong Kong, most major sectors including banking, insurance, manufacturing and coal mining fell between 2 per cent and 5 per cent by the close. Coal miners suffered the biggest setback with a 4.43 per cent drop.

FIH Mobile, which assembles smartphones for Xiaomi and Sony, plummeted 21 per cent to a seven-year low of HK$2.52 after the company warned its first-half profit could fall 92 per cent.

Wong said the weak market performance in the mainland led to a souring of investor sentiment in Hong Kong.

“I think the unexpected fall in the A-share market [today] led the sentiment in Hong Kong to be more bearish than before … [people] are a bit worried about the China market right now,” Wong said, adding that the weakening trend was likely to continue in Hong Kong and on the mainland next week.

“During this current decline, we have not seen any meaningful rebound at all,” he said. “That means people are continuing to sell. The bears are actually controlling the market right now. There is no good news in the market [now] which can reverse this current trend.”

Additional reporting by Enoch Yiu