Stock connect launch fails to lift Hong Kong, mainland markets mired in global uncertainty
Hang Seng drops to two-week lows, Shenzhen Component Index down to lowest level in three and a half weeks
Hong Kong and mainland stocks were in the red on Monday amid shake-ups on the world political stage, even as the much-anticipated Shenzhen-Hong Kong Stock Connect made its debut.
Asian markets moved downward on global volatility, following the resignations of both the New Zealand and Italian prime ministers, the euro’s drop to 20-week lows, and US President-elect Donald Trump’s inflammatory tweets about China.
The Hang Seng — Hong Kong’s benchmark index — slipped to its lowest level in two weeks, down 0.26 per cent, or 59.27 points, to 22,505.55, while the Hang Seng China Enterprises Index fell 0.71 per cent, or 69.43 points, to 9,711.80.
A number of stocks tumbled to lows not seen in months, with Hong Kong Exchanges and Clearing slipping 2.66 per cent to HK$5.40, its lowest since early September.
Index heavyweight Tencent dropped to its lowest level since mid-August, down 0.52 per cent to HK$190.
Although the launch of the new trading link allowed foreign investors to trade in the tech-heavy Shenzhen market for the first time, markets saw a sell-off from the “disappointing” debut, according to Alex Wong Kwok-ying, asset management director at Ample Capital.
“The initial reaction was not really exciting,” he said. “But then it’s just like the Shanghai-Hong Kong connect, which also did not have too much action, so this is quite natural.”
It will take investors time to familiarise themselves with the new stocks they have access to, Wong said.
Trading volumes through the new connect will pick up in the future, according to Nicole Yuen, Credit Suisse vice chairman and head of equities for Greater China.
Northbound trading through the link on Monday reached 2.67 billion yuan, around 20 per cent of the quota, while southbound funds into Hong Kong were at 923 million yuan, less than 9 per cent of the quota.
Casino stocks rose more than 2 per cent overall after Japan’s ruling Liberal Democratic Party pushed ahead with the legalisation of casino gambling in Asia’s second largest economy.
In the mainland, the Shenzhen Component Index sunk to its lowest level in three and a half weeks, falling 1.18 per cent to 10,784.33 points.
The Shanghai Composite Index dropped 1.21 per cent to 3,204.71 while the CSI 300 — which tracks large companies listed in Shanghai and Shenzhen — lost 1.69 per cent at 3,469.41.
Only the Nasdaq-style ChiNext bucked the trend, keeping afloat with a 0.02 per cent rise to 2,143.88.
Markets were dragged down by comments from China Securities Regulatory Commission chairman Liu Shiyu over the weekend, in which he called the practice by insurance firms of acquiring stakes in companies with questionable funds “barbaric.”
Insurance companies, which have been the main driver of Asian market value of late, dropped as a result, according to Wong.
China Pacific Insurance plunged 9.92 per cent to 5.72 yuan, while China Life Insurance fell 1.39 per cent to 24.83 yuan.
Chinese markets were also hurt by Donald Trump’s criticism at the weekend of China’s currency devaluation and its contentious movements in the South China Sea, Yuen said.
Investors have had a “very subdued risk appetite” because of international uncertainties including Brexit, Trump’s election victory, and the defeat of the Italian constitutional reform referendum, Yuen said.
Market sentiment was also hit by the sudden resignation of New Zealand Prime Minister John Key, Austria’s election of its new president Alexander Van der Bellen over his populist, far-right opponent, and Trump’s conversation with the Taiwanese president on Friday, which breached decades of foreign policy protocol.
However, these uncertainties will not have a long-term impact, Wong said, and there will be no overhang on the markets, which he expects to rebound.