Hong Kong stocks under pressure amid fears of slowdown in China

Exodus of capital sees Hang Seng fall for third day as concern grows over mainland economy

PUBLISHED : Tuesday, 28 January, 2014, 12:27am
UPDATED : Tuesday, 28 January, 2014, 5:14pm

Hong Kong stocks are under mounting pressure after jittery investors started to withdraw their capital amid renewed concerns over a slowdown on the mainland, default risks and tightening monetary conditions in the world's second-largest economy.

The benchmark Hang Seng Index dropped for the third consecutive day as the mainland's manufacturing sector contracted for the first time in six months in January, leading to a weak start for the economy in 2014.

The Hang Seng Index yesterday dived 473.96 points or 2.11 per cent to finish at 21,976.10.

It was the biggest decline in Asia yesterday after the Japanese and Indonesian markets.

The mainland's domestic benchmark Shanghai Composite Index lost 1.03 per cent to end at 2,033.30.

"Money is flowing out of Asian equities to cash, OECD [Organisation for Economic Co-operation and Development] bonds and gold," said Khiem Do, head of the Asian multi-asset team at Barings Asset Management.

"There is a strong risk-off sentiment right now thanks to the news from China."

The market is rife with fears over the mainland, primarily due to the risk of default by a trust product linked to one of the world's largest banks, the Industrial and Commercial Bank of China, and to China Credit Trust.

Some market players think the first such default of a wealth management product in mainland history could trigger a financial shock and unleash a sell-off of mainland-related stocks. However, those fears were eased after the market closed yesterday, when it emerged that a deal had been reached to restructure the three billion yuan (HK$3.8 billion) wealth management product named "Credit Equals Gold #1 Collective Trust Product", which promised a 10 per cent return.

"China has a lot of wealth management products and trust loans maturing in 2014 and we will have to see whether those securities could be paid back or rolled over successfully," Baring's Do said.

Meanwhile, major European bourses closed lower yesterday. London's FTSE index was the biggest loser, shedding 222 points, or 3.29 per cent.

The German DAX and the French CAC 40 performed better, losing 0.46 and 0.41 per cent respectively.

In early trading in New York, the Dow Jones Industrial Average was down 0.3 per cent at 12pm, while the tech-heavy Nasdaq was lower by 1.5 per cent.