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Hong Kong stocks retreat on stronger dollar and falling oil prices

The Hang Seng Index slips back 0.08 per cent to 22,262.88, reflecting the second straight day of weakness

PUBLISHED : Thursday, 17 November, 2016, 9:10am
UPDATED : Thursday, 17 November, 2016, 6:14pm

Hong Kong markets ended fractionally lower on Thursday with fluctuating oil prices and continued dollar strength hurting Asian sentiment ahead of US Federal Reserve chair Janet Yellen’s testimony to Congress on the economic outlook.

The Hang Seng Index closed 0.08 per cent lower at 22,262.88, while the Hang Seng China Enterprises Index fell 0.38 per cent, or 36 points, to 9,326.54.

Investors have been watching the strengthening US dollar, which has surged to a near 14-year high against a basket of currencies, dragging the Hang Seng into a downward trajectory since the US election.

“The strong US dollar worries investors over capital outflows from Asia markets,” said Hanna Li Wai-han, a strategist at UOB Kay Hian. “The capital outflow concerns will continue to haunt Hong Kong stocks.”

Castor Pang Wai-san, head of research at Core Pacific-Yamaichi International echoed the view, saying that corrections in the market are likely to continue in the near term. “The investor continues to see corrections instead of [seeing the index] already hitting its bottom,” he said.

The most active stock Tencent dropped 1.07 per cent to HK$ 194.80 after China’s second-largest technology giant said its third-quarter net profit grew 43 per cent to 10.65 billion yuan (HK$12 billion), but fell short of the estimated 11.68 billion yuan from a consensus forecast of analysts surveyed by Bloomberg. Pang expects the company will likely follow the correction path of the Hang Seng.

Tencent’s drop helped to drag down an index tracking Hong Kong-listed technology companies nearly 1 per cent.

HSBC, the second most heavily traded stock, ranked as the biggest loser among the Hang Seng index constituents, closing down 1.71 per cent to HK$60.40 after announcing it would sell its unit in Lebanon to Blom Bank SAL, in an effort to cut back its global operations.

Energy stocks were among the biggest losers on Thursday in response to volatile oil prices, with PetroChina sliding 0.58 per cent, while China Petroleum & Chemical dropped 0.57 per cent.

Uncertainty still looms over a possible Opec deal to rein in production to address global oversupply.

Russia said it will meet with Saudi Arabia to discuss supply cuts, following an announcement by the US Energy Information Administration of a larger-than-expected buildup in US crude oil inventories.

Brent crude futures traded down 0.24 per cent at US$46.74 per barrel.

Thursday‘s market turnover shrank to HK$62.29 billion on the main board, the lowest level in a week, as “investors may be hesitant to carry large exposure into today’s testimony by the Fed chair,” Citi analysts said.

Yellen’s testimony, scheduled to take place in the evening Hong Kong time, is expected to provide insight into the growing likelihood that interest rates will be raised in December.

“Fed hike expectations remain well supported,” Citi analysts said in a morning note. “Market participants will closely watch for Fed chair Yellen’s testimony for cues on monetary policy.”

An increase could affect Asian companies more vulnerable to the rates, such as property developers, according to Pang.“The interest rate hike [is] very possible in December, and that already drives the interest rate-sensitive stocks,” he said.

Sino Land dropped 0.36 per cent and Henderson Land Development lost 0.24 per cent. China Overseas Land & Investment declined 0.23 per cent following the abrupt resignation of the company’s chairman and chief executive, Hao Jian Min.

However, the rally of casino operators limited the decline of Hong Kong stocks with Sands China surging 5.21 per cent and Galaxy Entertainment jumping 4.33 per cent.

Traders are keeping an eye on the Shenzhen-Hong Kong Stock Connect ahead of its likely launch next Monday, although analysts have discounted its effect on the markets.

But mainland investors may find the reduced controls on blue chip stocks and H-shares could provide some momentum, Pang said.

In the mainland, the Shanghai Composite Index rebounded 0.11 per cent to 3,208.45, while the CSI 300 — which tracks the large caps listed in Shanghai and Shenzhen — added 0.2 per cent to 3,436.53.

The Shenzhen Component Index fell 0.21 per cent, or 22.67 points, to 10,942.10 while the Nasdaq-style ChiNext shed 0.89 per cent, or 19.43 points, to 2,163.04.

Overnight in the US, markets pulled back as the financial sector retreated after days of post-US presidential election gains.

The Dow Jones Industrial Average ended a seven-day rally, closing down 54.92 points, or 0.29 per cent, at 18,868.14, while the S&P 500 lost 10.16 per cent, or 3.45 points, to 2,176.94.

Meanwhile, the Nasdaq Composite closed up 0.36 per cent with the support of strong performances of technology stocks, adding or 18.96 points, to 5,294.58.