Hong Kong stocks lose hero status, slump to worst global performer in past fortnight
The Hang Seng Index has fallen 5.9 per cent in the two weeks through Wednesday, earning the status of the world’s worst performing major market
For Hong Kong stocks, what a difference a fortnight makes.
That is how long it has taken for the city’s main stock market index to shift status from the world’s best performing major market to the worst, among measures of performance for the 10 trading days.
Since touching a decade high on November 22, the Hang Seng Index declined 5.9 per cent as of Wednesday‘s close. That makes the gauge the biggest decliner among the major equity benchmarks globally in the period.
The measure of the city’s 51 blue-chip companies had advanced 36 per cent between January through November, to rank as the best performer of the world’s main markets. The city’s blue chip index underwent a quarterly rebalancing on December 1.
Investors having grown accustomed to the markets steady advance this year appear to have missed the subtle change that culminated in Wednesday’s 2.1 per cent decline, the biggest single-day drop this year.
The index’s best-performers including Geely Automobile Holdings and AAC Technologies Holdings bore the brunt of the sell-off.
The turmoil can be explained by the recent weakness on mainland equities amid deleveraging, sour sentiment in the US market as investors adopt a sell-the-news strategy after the unveiling of tax reforms, and expectations about interest rate increases by the Federal Reserve.
Citic Securities, China’s biggest listed brokerage, is optimistic about the outlook for Hong Kong stocks, saying much of the decline can be attributed to investors cashing out of stocks with significant gains before the Christmas holidays.
“The year-end correction may present a good opportunity for allocating funds next year,” said Yang Lingxiu and Qin Peijing, analysts at the brokerage, pointing out that fundamentals haven’t changed.
The Hang Seng Index is valued at 12.6 times estimated earnings for this year, the cheapest among the world’s major markets, according to data compiled by Bloomberg. The multiple for the Standard & Poor’s 500 Index is 19.2 times, 16.1 times for Europe’s Stoxx 600 Index and 19 times for Japan’s Nikkei 225 index, the data show.
Mainland buying through the stock connect link with the Hong Kong exchange, a major force that has shored up the city’s equities this year, appears to be unaffected by the painful shakeouts affecting investors in other markets. During the slump on Wednesday, mainland traders pumped a net of 833.5 million yuan (US$126 million) into Hong Kong stocks. They have bought more Hong Kong shares than they sold every day over the past four months. The most recent single day of net selling dates back to August 16.
Meanwhile, Hong Kong-traded shares of the dual-listed Chinese companies trade at their cheapest level vis-à-vis their mainland counterparts in 18 months, according to a gauge tracking the price gaps between the two markets.
“The wealth effect is there so the southbound investment through the exchange link will remain active,” said Wei Wei, a trader at Huaxi Securities in Shanghai. “This isn’t a reversal of the trend on Hong Kong stocks and they will come back soon after the consolidation.”