Hong Kong stocks slide for third day as China holds key policy rate while housing slump persists, odds of US rate cut weaken after inflation reports

China’s central bank keeps the rate on one-year term facility unchanged at 2.5 per cent; official report shows home prices declined again in February
US producer prices rose faster than expected in February, prompting traders to trim bets on a rate cut in May

Hong Kong stock market

Zhang Shidongin Shanghai

Published: 10:50am, 15 Mar 2024

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Hong Kong stocks dropped for a third day after China’s central bank left a key policy rate unchanged despite a deepening slowdown in the housing market. Traders scaled back bets on an imminent rate cut in the US after producer prices accelerated faster than market consensus.

The Hang Seng Index slumped 1.4 per cent to 16,720.89 at the close on Friday, restraining the weekly advance to 2.3 per cent. The Tech Index slid 1.5 per cent while the Shanghai Composite Index added 0.5 per cent.

Chinese developers led losses after an official report showed slumping home prices in February, as Longfor Group tumbled 3.5 per cent to HK$10.54 and China Resources Land lost 0.8 per cent to HK$25.20.

Alibaba Group fell 2.1 per cent to HK$71.90 and Meituan declined 3.8 per cent to HK$89.40.

The People’s Bank of China kept the rate on one-year medium-term lending facility at 2.5 per cent on Friday, dashing hopes of additional monetary easing after a major liquidity injection and rate cut earlier this year to revive growth. It also withdrew 94 billion yuan (US$13 billion) of cash from the financial system.

“Authorities will likely need to implement more substantial measures in the coming months,” said Stephen Innes, managing director at SPI Asset Management. “Without a substantial increase in stimulus measures or meaningful efforts toward structural reform, the economy could face another tumultuous period similar to last year.”

Local stocks have rallied by 12 per cent from a January low as sentiment improved on the back of China’s market intervention, helping the city’s benchmark index erase all of its losses in 2024 earlier this week. That came to a halt, however, as investors worried about the persistent slowdown in the mainland housing market.

A government report on Friday showed home prices in 70 major mainland cities fell for a ninth straight month in February, suggesting recent policy measures have not been forceful enough to overturn pessimism among homebuyers. Other reports this week showed some of the nation’s biggest builders, including China Vanke and Country Garden, struggling to repay their borrowings.

Country Garden to raise funds for US$13 million bond coupon within grace period

Elsewhere, China is due to release several reports on the economy’s performance in January-February on Monday. Also, some 30 Hang Seng Index members are expected to release their report cards in the coming week.

Stocks fell across the region after US producer prices rose 1.6 per cent last month from a year earlier, outpacing economists’ forecasts for a 1.2 per cent increase. With almost no chance of a Federal Reserve rate cut at this month’s meeting, investors have also turned less bullish as the odds weakened for a cut in May, according to data compiled by CME Group.

Japan’s Nikkei 225 slipped 0.3 per cent, while South Korea’s Kospi retreated 1.9 per cent and Australia’s S&P/ASX 200 lost 0.6 per cent.