Hong Kong stocks slump to March low as Federal Reserve rate-hike stokes recession worries while Fosun suffers rating cut

Stocks revisited the lowest point in mid-March as traders braced for yet another US rate increase this week
The Fosun group faces more pressure after S&P downgraded its credit rating deeper into junk amid concerns about its finances

Hong Kong stock market

Zhang Shidongin Shanghai

Published: 10:45am, 19 Sep, 2022

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Hong Kong stocks fell to a six-month low on concern the Federal Reserve will make its fifth interest-rate increase at the risk of pushing the global economy into a recession. China’s commercial banks are likely to hold their lending rates this month to aid the economy.

The Hang Seng Index dropped 1 per cent to 18,565.97 at the close, its lowest level since March 15. The Tech Index slumped 2.1 per cent, while the Shanghai Composite Index lost 0.4 per cent.

Alibaba Group Holding slumped 3.6 per cent to HK$83.70, while Tencent Holdings lost 1.4 per cent to HK$289. Other big losers include WuXi Biologics, which tumbled 5 per cent to HK$49.25, and property management firm Country Garden Services, which retreated 6.9 per cent to HK$14.74.

The Fed will lift benchmark borrowing costs by at least 75 basis points at its policy meeting this week, according to Fed funds futures, with some traders pricing a full percentage point increase. Policymakers have so far raised a total of 225 basis points in the past four open-market committee meetings this year.

“Market sentiment is now clearly under pressure as worries are growing among investors that the Fed will be heavy-handed in raising interest rates,” said Liu Gu, an analyst at Guotai Junan Securities in Hong Kong. “Hong Kong stocks will have to follow the weak pattern on overseas markets.”

Two-year US government bond yields are at about 3.87 per cent, the highest level since 2007, while 10-year notes fetched about 3.45 per cent, steepening the curve inversion which typically signals an imminent recession. US equities fell last week in their worst performance since June, with the S&P 500 index losing almost 5 per cent.

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Elsewhere, Fosun International added 0.8 per cent to HK$5, reversing a loss of as much as 2.6 per cent, after the diversified group’s credit rating was cut one level to BB- from BB by S&P Global Ratings amid concerns about its finances. Its unit Shanghai Fosun Pharmaceutical lost 1 per cent to HK$20.10.

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Elsewhere, China’s commercial lenders are expected to maintain their one-year and the five-year loan prime rates for September at a price-setting on Tuesday, according to economists tracked by Bloomberg. They are at 3.65 per cent and 4.30 per cent respectively.

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China also lifted a two-week lockdown of Chengdu, the southwest city of 21 million in Sichuan province starting Monday, allowing residents to leave homes and return to work. They are still required to take nucleic acid tests once a week, among other rules imposed by the local government.

Five companies started trading on the mainland’s exchanges on Monday. Dabond Technology, a producer of integrated circuit packaging materials, jumped 62 per cent to 74.77 yuan in Shanghai. Zhejiang Power New Energy, which makes chemicals for lithium batteries, tumbled 22 per cent to 40.59 yuan.

Furniture maker Zhejiang Zhengte surged 44 per cent to 23.11 yuan in Shenzhen, while Zhejiang Wandekai Fluid Equipment Technology retreated 14 per cent to 33.69 yuan and energy-storage goods supplier Shenzhen Hello Tech Energy fell 11 per cent to 210.50 yuan.

Other major markets in the region were generally weak, as South Korea’s Kospi slid 1.1 per cent and Australia’s benchmark slipped 0.3 per cent. Japan’s market is shut for a public holiday.