Hong Kong stocks suffer biggest weekly loss in eight months
Hong Kong stocks suffered their biggest weekly loss in eight months after sliding for a fourth day on Friday.
The market was hit by reports about US technology companies’ systems being infiltrated by tiny chips implanted by Chinese intelligence agents, surging US treasury yields and reductions in target prices.
The Hang Seng Index fell by as much as 1 per cent, or 250.41 points, to touch 26,373.46 on Friday morning, before recovering some losses and closing at 26,572.57, down 0.19 per cent. The losses added up to 4.38 per cent or 1,215.95 points for the week, the most since the week ending February 9, when the market lost 9.49 per cent.
The Hang Seng China Enterprise Index fell 0.16 per cent per cent, or 17.32 points, to close at 10,530.32 on Friday. On a weekly basis, it was down 4.43 per cent, or 487 points, also its biggest drop since the week of February 9, when it lost 12.09 per cent.
Mainland stock markets are closed and will reopen next week. Brokers said the mainland markets’ closure has brought selling pressure to Hong Kong stocks this week.
Dickie Wong, executive director of research at Kingston Financial Group, said the lack of southbound capital flowing through the “stock connect” link during the National Day holidays had contributed to the decline this week.
“The large losses [of Hong Kong stocks this week] have reflected [macroeconomic] headwinds such as the worsening US-China trade war, the weakening yuan and poor mainland economic statistics,” he said.
“Looking ahead, Hong Kong stocks are likely to bounce back next week.”
Wong said the selling pressure may shift north again when the mainland markets reopen on Monday.
The biggest losers on Friday were technology shares. This followed Bloomberg’s report alleging Chinese spies have been placing chips inside equipment assembled in the mainland, which would give Beijing secret access to internal networks.
“The market is worried that spies with a Chinese military background may have infiltrated US companies,” Wong said. “Although the parties involved denied the report, it is troubling the market.”
Lenovo Group, the world’s largest maker of personal computers, which assembles its computers in the mainland, plunged 15.1 per cent to HK$5.06 after a five-day rally in which it had accumulated gains of 13 per cent.
AAC Technologies Holdings, a major acoustics component supplier for Apple, fell 2.2 per cent to HK$78.3 at Friday’s close.
Tencent Holdings, dropped 1.1 per cent to HK$305 having touched HK$302.4 in the morning, a 14-month low despite continuous share buy-backs.
ZTE Corp plunged 11 per cent to HK$12.64. Xiaomi dropped 1.5 per cent to HK$14.28 after CCB International Securities lowered its target price.
The losses in the benchmark index came after the Dow Jones Industrial Average Index fell 0.8 per cent to 26,627 overnight. Notably, the Hang Seng Index has remained below the Dow Jones index since Thursday, the first time since April 2003 when Hong Kong was rocked by the Sars outbreak.
“The Hang Seng Index tends to be more volatile than the Dow Jones index,” said Wong. “The profits of companies in the US were good. After the inclusion of new-economy shares such as Apple, the valuation of the shares in the index also rose.”
The worst blue-chip performer was Link Reit, Asia’s biggest property investment trust, which dropped 3 per cent to HK$70.95 after investment bank Nomura downgraded and reduced its target price, predicting low growth in the interim dividend.
Insurer ZhongAn Online dropped 3.4 per cent to HK$26.90 on Friday after JP Morgan cut its target price by more than half.
Yields on 10-year US Treasury bills hit 3.232 per cent, the highest since May 2011, after investors dumped bonds on expectations of rising interest rates, reducing the appeal of stocks that offer high dividends.
CLP Holdings dropped 1.6 per cent to HK$87.10. HK Electric Investments fell 1.2 per cent to HK$7.58.
“The US has been increasing interest rates for three years. The US Federal Reserve also anticipated three more interest rate rises next year, which will reduce bond prices and lead to rising yields, ” said Wong. “Unless the stock can offset the pressure from a competitor of better yield with strong profit growth, these stocks are likely to drop further.”
Other Asian markets also dropped on Friday, with Japan’s Nikkei 225 down 0.8 per cent to 23,783 and Korea’s Kospi down 0.31 per cent.