China stock market

China, Hong Kong shares fall after US investors sell stocks for bonds in bloodbath amid growth angst

  • Jitters about weakening US growth spook equities from China and Hong Kong to Japan
  • US equities saw their steepest declines overnight since October
PUBLISHED : Wednesday, 05 December, 2018, 10:08am
UPDATED : Wednesday, 05 December, 2018, 5:26pm

Traders put the brakes on a three-day roll of gains in the battered markets of mainland China and Hong Kong, as concerns mounted about a slowing US economy following a slump in the Treasuries yield and President Donald Trump’s tweets added to confusion about the progress in trade talks.

By the close on Wednesday, the Shanghai Composite Index had slipped 0.6 per cent and the Hang Seng Index sank 1.62 per cent. Benchmarks across Asia all fell, with Japan’s Nikkei 225 index slightly paring losses to end down 0.5 per cent after an earlier 1.4 per cent loss.

The regional sell-off came as US traders increased their buying of bonds and unwound their equity holdings amid concerns growth of the world’s largest economy may have already peaked. Major US stock gauges had their biggest slide since October in overnight trading, with the Dow Jones Industrial Average, the Standard and Poor’s 500 Index and the Nasdaq Composite Index all falling at least 3.1 per cent. Meanwhile, the yield on 10-year treasuries tumbled to 2.91 per cent.

Hong Kong’s investor confidence plummets to lowest level in almost a decade amid trade war, market volatility

The further flattened yield curve suggested that bond traders were pricing in weaker growth going forward. Traders also had their eyes on the yield gap, as three-year yields climbed above those of their five-year peers, potentially foreshadowing that the Federal Reserve will end the current cycle of raising interest rates.

“The risk of slowing US growth is looming, so there is a risk-averse sentiment in the equity market,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “If the slowdown is sharp, the global markets will be in for bigger turmoil.”

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Sentiment was also dented as investors reassessed the outlook of the trade war between China and the US after the top leaders from the two nations reached a 90-day truce over the weekend. Trump suggested Tuesday that he could extend the truce with China, while his top White House economic adviser backtracked from the president’s announcement that Beijing had agreed to reduce tariffs on imports of US-made cars.

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The Shanghai Composite Index lost 16.15 points to 2,649.81. The Hang Seng Index shed 440.76 points to 26,819.68 and the Hang Seng China Enterprise Index, or the H-share gauge, dropped 1.38 per cent.

In the mainland, stocks linked to the investment theme of a technology board on the Shanghai exchange tumbled after the regulator increased scrutiny of trading. Luxin Venture Capital Group slumped by the 10 per cent daily limit to 16.71 yuan by midday and stayed there at close, and Kunwu Jiuding Investment Holdings also plunged by the magnitude and ended down 9.98 per cent. Both stocks had at least more than doubled over the past two months, rallying along with the broader market in late October and then continuing to gain after the surprise announcement in November by President Xi Jinping to create a board to help tech companies raise capital.

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In Hong Kong, companies with most exposure to the US market led the decline.

Overnight in the US, semiconductor supplier Cirrus Logic Inc. was the latest major Apple provider to cut its outlook, adding to concerns about prospects of demand for the technology giant.

Sunny Optical Technology Group, a supplier in Hong Kong, fell the most among blue chips, diving 7.3 per cent to HK$74.00, while AAC Tech fell 3.7 per cent to HK$54.60. Technology was down the most among sectors, by 2.85 per cent.

Automotives wiped off gains since the weekend, with Geely shifting down the second most among blue chips, losing 4.2 per cent to HK$15.08. Zhongsheng Holdings fell 3.79 per cent to HK$16.74 and Brilliance dropped 1.58 per cent to HK$12.48.

So far this year, the Shanghai Composite Index is down nearly 20 per cent while the Hang Seng Index has fallen more than 10 per cent.

Hong Kong’s investor confidence plummets to lowest level in almost a decade amid trade war, market volatility

Meanwhile, investor confidence in Hong Kong has plummeted to its lowest level in nearly a decade over the US-China trade war and increased market volatility, according to J.P. Morgan Asset Management.