China stock market

Hong Kong’s stocks fall to lowest in three weeks as bond and Italy woes spook investors

The Hang Seng Index closes at lowest level since May 8 and the Shanghai Composite Index posts longest streak of decline in a year

PUBLISHED : Tuesday, 29 May, 2018, 5:37pm
UPDATED : Tuesday, 29 May, 2018, 11:49pm

Stocks in Hong Kong and mainland China dropped on Tuesday, as investors took shelter against risk assets amid the political uncertainty in Italy and the decline of Chinese property developers led by Country Garden Holdings on concern that tightened liquidity will hurt the highly indebted industry.

The Hang Seng Index fell 1 per cent, or 307.68 points, to 30,484.58 at the close, the lowest level since May 8. The Hang Seng China Enterprises Index, or the H-share gauge, slid 1.3 per cent. The mainland’s benchmark Shanghai Composite Index fell for a fifth day, the longest streak of declines in a year.

Major equity markets in Asia all fell, with Japan’s Nikkei 225 and South Korea’s Kospi index retreating at least 0.6 per cent, as the euro weakened and Italy’s stocks and bonds both headed south after the Mediterranean country is in for fresh elections as the populist parties have failed to form a government since a March poll.

After a 36 per cent gain last year, the momentum on the Hang Seng Index has slowed in 2018. The gauge has been stuck in a 2,000-point range over the past three months, as the city’s stocks are more buffeted by external factors like rising yields on US treasuries and the frayed trade relations between China and the US.

“The risk appetite is falling as investors are worried about a repeat of the Europe debt crisis,” said Chen Hao, a strategist at KGI Securities in Shanghai. “On the backdrop of deleveraging, the market believes that the risk is increasing and that [mainland Chinese] developers will miss the bond payments as it’s an industry with a pretty high debt ratio.”

Country Garden retreated 2.8 per cent to HK$15.50. China Overseas Land & Investment shed 1.5 per cent to HK$26.20 and China Resource Lands fell 1.4 per cent to HK$28.65. China Vanke slumped 2.9 per cent to HK$28.40. Its Shenzhen-traded stock sank 3.4 per cent to 25.60 yuan.

A rising number of bond payment defaults were weighing on equities, as liquidity tightens after the government increased scrutiny of the nation’s asset management industry. There have been 20 defaults on debt payments so far this year, compared with 17 cases in the same time in 2017, according to Chuancai Securities.

Want Want China Holdings jumped 4.7 per cent to HK$7.56 as the best performer on the Hang Seng Index. Daiwa Capital Markets raised its 12-month price target on the stock by 7.5 per cent to HKS8.60, saying the company’s revenue growth may have accelerated in its semi-annual report due on June 5. Sales probably increased 22 per cent in the period, according to Bloomberg data.

Alibaba Health Information Technology, a unit of e-commerce giant Alibaba Group Holdings, rose 3.6 per cent to HK$7.01, bringing the stock’s gain to 77 per cent this month. The company said it will sell HK$10.6 billion (US$1.35 billion) worth of new shares to Alibaba Group in exchange for assets including online Tmall pharmacy, adult products, medical devices and health care products.

In trading in the mainland, the Shanghai Composite lost 0.5 per cent, or 14.62 points, to 3,120.46, capping a 2.9 per cent five-day loss. The CSI 300 Index of large-caps slid 0.8 per cent and the ChiNext gauge of smaller companies retreated 1.3 per cent.

Pharmaceutical stocks, the best-performing group this year, tumbled 5.1 per cent, paring the gain on a subindex tracking the sector to 23 per cent this year. Among them, Zhangzhou Pientzehuang Pharmaceutical tumbled by the 10 per cent daily cap to 116.84 yuan, trimming its advance to 85 per cent in 2018. Aier Eye Hospital Group slumped 9.6 per cent to 31.14 yuan and Chongqing Zhifei Biological Products shed 8.6 per cent to 45.60 yuan.