Hong Kong stocks pare losses as banks jump on Fed rate outlook, earnings

Shanghai shares fall to lowest level in more than three months as more data adds to evidence mainland growth is decelerating

PUBLISHED : Thursday, 04 May, 2017, 9:10am
UPDATED : Thursday, 04 May, 2017, 6:25pm

Hong Kong stocks erased early losses to close slightly lower on Thursday, as a rally in HSBC on the back of robust earnings and rising expectations of a June Fed rate raise helped offset losses in the tech sector.

In mainland trading, Shanghai shares fell to their lowest level in more than three months as more data added further evidence China’s growth is decelerating.

The Hang Seng Index fell as much as 0.7 per cent, before paring losses in the afternoon and closing down 0.1 per cent, or 12.25 points, at 24,683.88.

The Hang Seng China Enterprises Index, known as the H-shares index, dropped 0.8 per cent, or 85.6 points, to 10,088.02.

Daily turnover rose to HK$80 billion, up 14 per cent from the previous session. Hong Kong markets were shut on Wednesday for the Buddha’s Birthday holiday.

Banking stocks jumped, after expectations increased for a June rate rise by the US Federal Reserve, which stood pat on interest rates at its May meeting.

Higher interest rates are a boon for banks, as their net interest margins receive a boost.

“As was widely expected, the FOMC [Federal Open Market Committee] left US rates unchanged at its May meeting, but left the door open for a move in June,” said Lee Ferridge, head of multi-asset strategy for North America at State Street Global Markets.

“The key over the coming weeks will be economic data from the US, but in addition the FOMC will be closely watching Washington and negotiations surrounding the new administration’s tax cut plans.”

On Wednesday night, the Fed held interest rates at the conclusion of its two-day May meeting, but downplayed the weakness of the US economy in the first quarter and signalled it’s still on track to deliver two more rate rises this year.

Other analysts agreed the Fed statement and post-meeting press conference showed a more hawkish tone.

“This glass-half-full statement leaves the door wide open to a June rise, provided, of course, the recent data letdowns are indeed transitory,” said Michael Feroli, chief US economist, JP Morgan in a note.

“We expect this will be the case and continue to look for another 25 basis point move next month.”

HSBC led the way among blue-chips in Hong Kong, up 2.9 per cent to HK$66.35.

The banking giant reported a 12 per cent on-year increase in adjusted pre-tax profit for the first quarter, atop market expectations. Goldman Sachs raised its target price for HSBC by 3 per cent to HK$72.

This [The Fed decision to keep rates steady] glass-half-full statement leaves the door wide open to a June rise, provided, of course, the recent data letdowns are indeed transitory
Michael Feroli, chief US economist, JP Morgan

Hang Seng Bank climbed 2.7 per cent to HK$162.3. Bank of China (Hong Kong) advanced 1.2 per cent to HK$32.6. Bank of East Asia rose 0.9 per cent to HK$32.5.

However, technology shares were broadly weak, pulling back after recent gains.

Chinese online major Tencent Holdings gave up 1.9 per cent to HK$243.8. Software developer Kingdee International Software lost 2.1 per cent to HK$3.2.

AAC Technologies, which supplies acoustic components to Apple’s iPhones, tumbled 3.1 per cent to HK$109.9, after Apple reported a surprise drop in iPhone sales for the second quarter.

In the mainland, sentiment remained weak after multiple sets of data released recently indicated the Chinese economy is losing momentum after a strong start to the year.

The Shanghai Composite Index fell for a third day in a row, down 0.3 per cent, or 7.98 points, to end at 3,127.37, the lowest level in more than three months.

The large-cap CSI300 ended 0.3 per cent, or 8.74 points, lower at 3,404.39.

The Shenzhen Composite Index and the startup board ChiNext index lost 0.3 per cent and 0.1 per cent each, finishing at 1,896.36 and 1,838.1.

The China Caixin Services Purchasing Manufacturing Index (PMI) eased to 51.1 in April, the weakest in eleven months, down from 52.2 in March, a private survey showed Thursday.

“Judging from all the manufacturing and service PMIs in April, activity growth (in the manufacturing and service sectors) may have decelerated from the strong levels in March,” said Maggie Wei and Yu Song, analysts for Goldman Sachs, in a note on Thursday.

Coal miners declined in mainland markets, with Shaanxi Coal Industry down 2.7 per cent to 5.78 yuan, China Coal Energy off 2.1 per cent to 5.62 yuan, and China Shenhua Energy dropping 0.9 per cent to 19.89 yuan.