Hong Kong stocks fall most in a week as Meituan slides before earnings report while new data underpins Fed tightening bias

Meituan is set to report a wider net loss as crackdown and lockdown likely eroded earnings power last quarter, analysts forecast
Strong US manufacturing data and job openings heightened concerns about the Federal Reserve’s super hawkish policy

Hong Kong stock market

Zhang Shidongin Shanghai

Published: 10:47am, 2 Jun 2022

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Hong Kong stocks dropped by the most in a week as Meituan led declines among tech stocks before the food-delivery platform firm reports its quarterly earnings. Stronger US economic data stoked policy-tightening concerns.

The Hang Seng tumbled 1 per cent to 21,082.13 at the close, the biggest pullback since May 24. The loss trimmed this week’s gain to 1.9 per cent. The Tech Index slipped 0.8 per cent. The Shanghai Composite Index added 0.4 per cent a day after Shanghai ended a two-month citywide lockdown. Markets are closed for a public holiday on Friday.

Meituan retreated 1.3 per cent to HK$180.20. Net loss in the quarter to March 31 probably widened to 6 billion yuan (US$901 million) from 4.8 billion yuan a year earlier, according to analysts tracked by Bloomberg. The report card is due after the close of trading.

“Tech stocks may still languish for a while,” said Wang Xueheng, an analyst at Guosen Securities. “The expectations for 2022 corporate earnings are still high and there will be more cuts going forward. US stocks may also be a drag as the correction is not over yet.”

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Alibaba Group Holding slid 2.4 per cent to HK$92.30 while Tencent Holdings retreated 0.4 per cent to HK$359. CSPC Pharmaceutical and Hang Lung Properties slumped more than 5 per cent, among the worst index performers.

Investors remained divided on the outlook for Chinese tech stocks after funds suffered steep losses this year as China’s zero-Covid policy caused lockdowns in some 40-odd mainland cities, reducing economic output to an unpredictable stop-start pattern. Analysts have kept cutting their price targets, while others predicted a short-term bounce as China passed its short-term peak-Covid pain.

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Investment banks from China International Capital Corp and Citic Securities have said weaker consumer spending will pose the biggest risk to earnings of big tech companies this year amid the fallout from city lockdowns. Manuel Muehl, an analyst at DZ Bank, continues to be bearish on Alibaba and the tech sector since cutting his forecasts in July last year.

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Goldman Sachs remains bullish on Chinese stocks at home and offshore, banking on policy support to drive a 20 per cent gain in the MSCI China Index by March next year. China is seeking to arrest a decline in economic output with policy stimulus, though more forceful measures are needed, it added.

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Elsewhere, Chinese EV makers and challengers to Tesla have a mixed day despite reporting better deliveries in May. Nio added 1.4 per cent to HK$141.20. Xpeng dropped 1.6 per cent to HK$91.50 while Li Auto slipped 0.2 per cent to HK$100.80.

Other major markets in Asia except India all declined on Thursday, taking cues from an overnight slide in US equities. An unexpected pickup in manufacturing activity and high job openings heightened concerns the Federal Reserve will keep pursuing its hawkish rate policy.