Hong Kong-listed mainland shares completed their longest losing streak since the 1990s yesterday amid deepening worries over the economic slowdown on the mainland.
The Hang Seng China Enterprises Index, which tracks mainland enterprises listed in Hong Kong, fell below the psychologically important 10,000-point level yesterday for the first time since last October, led by financial and property firms.
The drop marked the 10th consecutive day the index had fallen, the longest losing streak in 17 years. It shed 1.65 per cent to finish at 9,959.74 points yesterday. The Hang Seng Index lost 1.2 per cent to finish at 21,354.66.
The fall came after the news that export growth fell to just 1 per cent year on year in May and industrial production in the first five months of the year saw the weakest growth since 2009, causing analysts to slash their forecasts for domestic growth.
Wendy Liu, head of China equity research at Nomura, said: "The past two weeks feel very similar to the late August to early September period of 2012. Sentiment in the capital market became more pessimistic due to a worsening in perception."
The valuation of the H-share index is only 15 per cent above the trough of 2008, with the 2013 price-earnings ratio at eight times and the price to book value ratio at 1.2 times.
Michele Mak, portfolio manager at BNP Paribas Investment Partners, said she would accumulate quality bank names gradually because of their cheap valuation. "Bank valuations are not factoring a big credit crisis, such as a burst of non-performing loans, but the current level has priced in a big earnings growth disappointment," she said.
Mainland lenders were sold off yesterday, as investors worried that interest rate liberalisation would squeeze lenders' margins and Beijing's tighter control over wealth management products would hurt their profitability. Bank of China lost 3 per cent to HK$3.26, while Industrial and Commercial Bank of China fell 1.3 per cent to HK$5.17.
Mainland banks now trade at a historical low, at around one times price to book value on 2013 estimates, on average.
Property firms were also hit as worries grew after mainland home prices rose for the 12th consecutive month. Hang Lung Properties, a Hong Kong-based developer which gets 42 per cent of sales from the mainland, fell 3.8 per cent to finish at HK$25.30.
Equity funds have had nine consecutive weeks of outflows from April 10 to last week, the tracking firm EPFR said. So far this year a total of US$756 million has been withdrawn from funds invested in mainland equities, including Hong Kong-listed mainland firms, A shares and exchange-traded funds.
Fund managers said the outflow might be unavoidable as the US market looks more attractive amid speculation that bond yields would rise if the US Federal Reserve tapered off quantitative easing in the fourth quarter.
High-end property developers, as well as steel and cement makers with severe excess capacity, may continue to see corrections, according to Khiem Do, a portfolio manager at Barings: "We now realise no stimulus is coming out and China wants to take bitter medicine first."