Hong Kong Stock Exchange

Hong Kong stocks slip as interest rate rise prospects remain uncertain

PUBLISHED : Tuesday, 13 September, 2016, 9:53am
UPDATED : Tuesday, 13 September, 2016, 10:15pm

Hong Kong stocks narrowed their losses on Tuesday on upbeat Chinese economic data and calming fears over a possible interest rate rise from the US Federal Reserve this month, news that had upset Asian markets the day before.

New comments from Federal Reserve Governor Lael Brainard cautioning against raising rates too soon have signalled a lower probability for monetary policy changes at the Fed’s September meeting. The market now believes there is only a 22 per cent probability of a rate rise at this month’s meeting, compared with a 57 per cent probability of a move in December, according to a DBS note issued on Tuesday.

As Hong Kong has its currency pegged to the US dollar, investors have been closely watching statements from Fed members after Hong Kong shares were dealt a severe blow on Monday amid concerns about rising interest rates.

The Hang Seng index, which plummeted on Monday to its lowest level since February, fell 0.32 per cent or 74.84 points to 23,215.76 on Tuesday, while the Hang Seng China Enterprises Index slipped 0.86 per cent or 83.02 points to 9,571.06.

Tuesday’s performance by the Hong Kong’s indices reflected easing concerns on the interest rate outlook, Haitong International Trading sales trader Andrew Sullivan said.

Kenny Tang Sing-hing, general manager of AMTD Financial Planning, said “sentiment is not too bad” for the Hang Seng in regard to a potential interest rate rise, adding that its slight decline today was in line with the strength the market has accumulated over the past few weeks. Last Friday, the Hong Kong benchmark equity index had risen to its highest level in almost 13 months.

Tang said the market has already “discounted the interest rate hikes” since it had expected them to happen some time during the second half of the year, although he added that there was some movement from speculation about the Fed’s decision.

People are genuinely confused about what the Fed intends to do now. I think a lot of people have taken the option of just sitting on the sidelines
Andrew Sullivan, Haitong International Trading

While Goldman Sachs’ analysts said on Tuesday that the “lack of a signal” from the Fed is meaningful, the divergent opinions from different Fed speakers have created uncertainty. The analysts added that the committee would nudge the market to anticipate an increase if it planned to raise rates.

“People are genuinely confused about what the Fed intends to do now,” Sullivan said. “I think a lot of people have taken the option of just sitting on the sidelines.”

On the mainland, markets reacted to Chinese economic data released Tuesday showing industrial production and retail sales were up in August over the month before.

The data was broadly in line with market expectations, meaning there would be no new action from the People’s Bank of China, Sullivan said.

Mainland Chinese equity markets closed mixed on Tuesday, with the Shanghai Composite Index up 0.05 per cent to 3,023.51 points while the CSI 300, which tracks large companies listed in Shanghai and Shenzhen, slipping 0.07 per cent to 3,260.33.

The Shenzhen Composite Index was up 0.62 per cent to 1,989.33 while the Nasdaq-style ChiNext ended the day up 0.01 per cent to 2,145.87.

Separately, the People’s Bank of China decided to inject cash into its financial system for the first time in seven months, offering 60 billion yuan in 28-day reverse repurchase agreements, or loans to commercial banks, according to the Wall Street Journal.

Tang said that the move means that “liquidity will be tightened”.

Insurance stocks dragged the Hong Kong indices down on Tuesday amid a bearish outlook for the sector following the decision last week to allow mainland Chinese insurers to buy Hong Kong equities through the Shanghai stock link. The sector as a whole fell 0.91 per cent, and insurance stocks had the second highest turnover, with over 4.6 billion yuan worth of shares changing hands.

Automobile stocks rose in response to the strong August economic data, Tang said, with Minth Group rising 2.08 per cent, New Focus Auto Tech Holdings up 3.64 per cent, and Sparkle Roll Group leading with a 6.78 per cent rise.

Sage International Group was the biggest gainer, surging 59.2 per cent to close at HK$0.32, while China Mobile rose 1.32 per cent to HK$95.75.

Hong Kong’s stock and futures markets will be closed on Friday while mainland markets will be closed on both Thursday and Friday for the mid-Autumn festival holiday.