Hong Kong stocks tumble to 9-month low
Hang Seng Index fails to escape Asian sell-off as investors take cue from fresh economic data and Fed plan on quantitative easing to cash out
Hong Kong stocks yesterday fell to their lowest levels since September last year, tracking an across-the-board sell-off in Asia on fresh data and the US Federal Reserve's hint that its quantitative easing programme may be tapered later this year.
Gold fell to US$1,295 an ounce, its lowest in more than 2-1/2 years, at midnight. The precious metal has lost 22 per cent this year and could be heading for the biggest annual loss in more than 30 years.
Chinese cyclical shares reeled from weak factory data and banks fell as interbank lending rate hit a record high on the mainland.
The cue from the Fed sent 10-year Treasury notes to a 20-month high and triggered a sell-off in high-dividend stocks as investors opted for the safety of government debt in the US.
The Hang Seng Index fell 2.88 per cent to finish at a nine-month low of 20,382.87 points. Market players said the index might drop below the psychologically important level of 20,000 soon, with more sell-offs to come in growth-proxy Chinese banks, energy firms and interest-rate-sensitive Hong Kong property stocks and real estate investment trusts.
The Shanghai Composite Index lost 2.76 per cent to finish at a six-month low of 2,084.02 points.
Mainland companies led the fall in Hong Kong as the flash HSBC purchasing managers' index fell to a nine-month low of 48.3, showing the economy is contracting. A reading below 50 indicates contraction while that above 50 shows expansion.
"The shift in the monetary policy stance since mid-May, likely driven by risk-control considerations, will put more downward pressure on near-term activity growth. In particular, tighter financial conditions in the interbank market have attracted the attention of the market," said Goldman Sachs China economist Song Yu.
Song expects the mainland's economic growth to weaken to 7.5 per cent in the second half, from 7.7 per cent in the first quarter and 7.9 per cent in the fourth quarter of last year.
"We see a derating pressure on Chinese stocks, especially banks and resources firms, based on the fresh PMI data. State-owned firms' earnings may grow at less than the market consensus of 10 per cent this year," said PineBridge fund manger Desmond Tjiang.
Dominant offshore oil producer CNOOC fell 4.41 per cent while China Shenhua Energy lost 3.7 per cent.
Banks weakened as the mainland's seven-day repo rate - the discount rate at which the central bank buys back government securities from commercial banks - rose to a record high 10.77 per cent. China Construction Bank fell most among the blue chips, with a loss of 5.16 per cent.
"Sentiment is quite bearish now … [although] the market is oversold at the moment," said Barings fund manager Khiem Do. "Investors would rather hoard cash at the moment than stay on equities."
Fund managers said this could be a good time to pick up shares, especially mainland property issues, as Beijing might stop further tightening in the housing market to stem the slide in economic growth.
Tjiang said he planned to buy property stocks, which are trading at four to five times earnings for this year.