Market Wrap: Hong Kong stocks fall as mainland market tumbles to 41-month low

Hong Kong stocks went into retreat on Monday, dragged down by mainland banks and insurers, as the onshore market slumped to a 41-month low, triggering a selloff of stocks that are dual listed onshore and offshore.

Investors in Hong Kong rushed to reduce their positions, or just turned their noses up at sectors like mainland banks and insurers, private-owned small and medium-sized players, as well as property developers, according to Paul Pong, Managing Director at Pegasus Fund Managers, which oversees more than HK$25 billion in assets.

“Last week we sold 50 per cent of our holdings of stocks of the Hang Seng China Enterprises Index. And we may continue to cut our position on the sectors mentioned above.” Pong told SCMP.com.

Mainland financial players were hit on Monday as investors sold stocks after deciding that Beijing would not approve any more reserve ratio cuts ahead of the once-in-a-decade power reshuffle this fall. Industrial and Commercial Bank of China (1398.HK), the nation’s biggest lender, lost 1.82 per cent to close at HK$4.31.

Leading coal producer China Shenhua (1088.HK) lost 1.864 percent to HK$ 28.95, after the firm’s A shares slumped to the lowest in more than two years in Shanghai. Citi Group on Monday lowered price target for this stock due to “lower coal prices and margin contraction”.

The benchmark Hang Seng Index (HSI) lost 0.41 per cent to 19,798.67 on Monday. The Hang Seng China Enterprises Index, which tracks the performance of Hong Kong-listed China enterprises, closed down 1.35 per cent to 9,544.62.

Hong Kong-based consumer stocks, especially jewellery and cosmetics firm, however bucked the downward trend, on speculation that mainland visitors will grow sharply from October after Shenzhen authorities loosened visa application procedure for its 4.1 million non-permanent residents last Friday. SaSa International (0178.HK) jumped 6.7 per cent to close at HK$ 5.01.

Jewellery stocks were specially favoured by traders also due to the recent strong upward momentum of gold prices. Luk Fook (0590.HK) gained 1.42 per cent to HK$21.45 on Monday.

China’s top refiner Sinopec Corp. (0386.HK) added 3.35 percent to finish at HK$7.41, after its interim results beat market estimates. The company will benefit from further improvements in its refining margin, and its current price has already priced in  weak demand for fuel amid poor global economic growth, JP Morgan said in a morning note.

Insurers also slumped on concern that the weak Chinese economy has not bottomed yet which may curb investment profits as well as new business value growth. New China Life Insurance (1336.HK) lost 4 per cent to HK$22.9, a record low since it listed in Hong Kong last year.

The market barely reacted to  Chinese Premier Wen Jiabao’s remarks over the weekend. China's Wen said during a trip to Guangzhou on Friday that the nation should pay "close attention" to the difficulties facing the export sector and the uncertainty over whether exports would meet a full-year growth target.

“Those pro-growth speeches by Chinese leaders are a bit of a cliché and are losing their impact. The market, both in Hong Kong and the mainland, want actions not rhetoric,” Wang Aochao, a Shanghai-based equity strategist at UOB Kay Hian Holdings, told SCMP.com.

“We are waiting for key indicators to rebound, including the PMI, PPI and M2. The mainland market will only bottom out when we see at least these three indicators showing an improvement,” UOB’s Wang said.