Stock Talk

Market Wrap: HSI down 2.4pc, biggest drop in over three months

PUBLISHED : Thursday, 08 November, 2012, 6:05pm
UPDATED : Thursday, 08 November, 2012, 8:26pm

Hong Kong stocks posted their biggest fall in more than three months on Thursday, tracking the slump in the global market, as investors took profit from previous rally amid concerns about the approaching US fiscal cliff and the ongoing leadership change in China.

The benchmark Hang Seng Index lost 532.94 points, or 2.41per cent, to finish at 21,566.91, below its 20-day moving average. Up to 47 firms fell on the 49-member index. Turnover jumped to HK$72.66 billion, the highest since September 14.

“The current unknowns in both US and China provide a very good excuse for investors to lock in profit,” said Castor Pang, head of Core Pacific-Yamaichi. The HSI has gained as much as 10.7 per cent since September.

Shares fell across Asia on Thursday. Japan’s Nikkei lost 135.74 points, or 1.51 per cent, to finish at 8,837.15. While the Shanghai Composite Index lost 1.63 per cent to finish at 2071.51, the biggest fall in two weeks when the 18th National Party Congress kicked off on Thursday in Beijing.

The major fear in the global market now, after Obama was re-elected as US president on Wednesday, is the risk of the US Congress and the White House being unwilling to compromise on the expiring tax and spending measures, which could threaten to take the US economy over a fiscal cliff and fall into a slight  recession.

“We feel the pressure has intensified on Congress to find a solution to the gridlock and have more certainty on fiscal policy,” said Andrew Cole, investment manager for Global Multi Asset Group at Baring Asset Management.

According to estimates by the Congressional Budget Office, without resolution of the fiscal cliff, the US economy could contract by as much as 0.5 per cent in 2013. “Worryingly, we believe this figure (0.5 per cent) is actually on the conservative side,” Cole said.

There were a massive selloff in materials, metals and oil stocks globally Thursday. In Hong Kong, Chalco, the world’s largest producer and consumer of the metal, shed 3.12 per cent to finish at HK$3.42. PetroChina and CNOOC each fell 3 per cent.

Meanwhile, profit taking was widely seen in financial and property sector. HSBC shed 2.73 per cent to finish at HK$74.9.

Investors were cautious also because they are waiting key data from China. China will release October inflation and activity data on Friday, followed by trade figures on Saturday.

Market watchers said declines in the onshore market was bigger than expected, even it has been a tradition for A shares to fall during key political meetings. In Hong Kong, the Hang Seng China Enterprises Index lost 286.21 per cent, or 2.65 per cent, to finish at 10,527.13.

“The decline was sharper than the market has expected,” said Li Jun, strategist with Central China Securities. He attributed the reason to the remarks by the fading-out Chinese President Hu Jintao, who promised to keep the nation’s GDP growth on track to double by 2020.

“That means China would grow at only six per cent in the next eight years. Chinese government has bigger-than-expected tolerance toward economic growth,” Li said.

With investors shorting stocks heavily, key market players, however, see it a good time for long-term investors to build positions.

“While investors will have to adopt a “wait and see” stance on how the new leadership will prioritise these policy changes… this could be the time for a longer-term investor to take advantage of the current attractive valuations in the Chinese equity market,” said Jing Ning, portfolio manager at BlackRock Asian Fundamental Equity team, in an emailed note to its clients.