China stock market

Hong Kong stocks fall for a second day as Chinese banks retreat

The Hang Seng Index trades at a discount among the world’s major equity benchmarks; it is a third cheaper than S&P 500 and 5pc less than Shanghai Composite Index

PUBLISHED : Tuesday, 30 January, 2018, 9:15am
UPDATED : Tuesday, 30 January, 2018, 10:30pm

Hong Kong stocks fell for a second day for the first time in six weeks on Tuesday, as Chinese banks and other big caps declined amid concern that this year’s gains have been excessive relative to earnings growth prospects. Mainland stocks also declined.

The benchmark Hang Seng Index dropped 1.09 per cent, or 359.6 points, to 32,607.29, extending Monday’s 0.6 per cent loss. The Hang Seng China Enterprises Index, or the H-share gauge, declined 1.98 per cent.

Market turnover was also down nearly 10 per cent to HK$173.45 billion (US$22.18 billion) on Tuesday, compared with the day before.

Chinese banks and other big caps led the losers, with China Construction Bank declining 2.85 per cent, Industrial and Commercial Bank of China dropping 2.28 per cent, and Bank of China retreating 3.54 per cent, wiping off most of last week’s gains. The three Chinese lenders have advanced at least 15 per cent this year.

“Most of the Chinese banks are at their three-year highs, so it’s reasonable for some investors to take profits and see what will happen next,” said Brett McGonegal, chief executive officer of Capital Link International.

The sell-off in Hong Kong stocks entered a second day after the Hang Seng Index had risen to a record close of 16 times so far this year. Traders began to offload their holdings of Chinese banks and other financial stocks on Tuesday, the best-performing sector this year, to lock in profits ahead of the Lunar New Year.

“A sudden and quick pullback is normal for such a bull market in Hong Kong,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “But it looks to me like the bull market hasn’t got too many fundamental problems yet. There’s no bubble in the big-weighted stocks, and valuations are still quite cheap.”

A sudden and quick pullback is normal for such a bull market in Hong Kong
Wang Chen, Xufunds Investment Management

The Hang Seng Index is still the cheapest among the world’s major equity benchmarks with an estimated price-to-earnings ratio of 12.9 times for this year, according to data compiled by Bloomberg. That is about a third cheaper than the Standard and Poor’s 500 Index and five per cent lower than the Shanghai Composite Index.

Tencent Holdings fell 2.08 per cent to HK$461.80 on Tuesday. The technology giant led a consortium including Sunac China Holdings and Suning Commerce Group to buy a 14 per cent stake in billionaire Wang Jianlin’s Wanda Commercial Properties for a combined 34 billion yuan (US$5.4 billion).

The deal may pave the way for a re-listing on the mainland market of Wanda Commercial, which the developer delisted from the Hong Kong stock exchange in 2016.

The news also boosted Wanda Hotel Development, an affiliate of Wanda Commercial, to surge 22.22 per cent to HK$1.65. Property developer Sunac China slipped 0.13 per cent to HK$38.25. Suning Commerce added 0.6 per cent to 13.46 yuan in Shenzhen.

In mainland trading, the Shanghai Composite Index slid 0.99 per cent, or 34.99 points, to 3,488.01. The CSI 300 Index of big-cap shares also dropped 1.07 per cent.

Markets in Japan, South Korea and Australia also trended lower, with the Nikkei 225 sliding 1.43 per cent, Kospi dropping 1.17 per cent, and All Ordinaries ending down 0.85 per cent respectively.