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Screens showing the index and stock prices outside Hong Kong Exchange Square (HKEX) in Central. Photo: Sun Yeung
BusinessChina Business

Hong Kong stocks tumble on China deflation concerns, moderated US rate cut expectations

  • Hong Kong’s property sector led with losses amid worries borrowing costs will remain elevated for longer
  • China’s consumer price data trailed consensus estimates and producer prices dropped for the 18th straight month, sparking deflation concerns
Hong Kong stock market
Zhang Shidong
Zhang Shidongin Shanghai
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Hong Kong stocks slid from four-month highs, as China’s sluggish inflation data suggested weak domestic demand, dealing a further blow to investor sentiment after US interest rate cut expectations were smashed overnight by surging consumer prices.

The Hang Seng Index fell 0.3 per cent to 17,095.03 at close, a day after finishing at the highest since November 28. The Hang Seng Tech Index slid 0.4 per cent, but the Shanghai Composite Index added 0.2 per cent due to the exchange’s lower sensitivity to foreign investor flows and expectations of state support.

Hong Kong’s property sector posted losses across the board on concerns borrowing costs will remain elevated for longer. New World Development dropped 4.3 per cent to HK$8.45 and Sun Hung Kai Properties slid 1.3 per cent to HK$74.30. Among other prominent decliners, NetEase shed 3 per cent to HK$154 and auto dealer Zhongsheng Group Holdings plunged 6.3 per cent to HK$14.40.

China’s consumer prices rose 0.1 per cent from a year earlier in March, the statistics bureau said on Thursday, with the reading trailing the consensus estimate of a 0.4 per cent increase. Producer prices dropped for an 18th straight month.

“China still faces the risk of deflation, as domestic demand remains weak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “The property sector slowdown continued in March. Fiscal spending has been weak so far this year. Export growth by itself cannot boost aggregate macro activities without help from more supportive fiscal policy.”

Sentiment also took a beating as investors adjusted their expectations of interest rate cuts by the US Federal Reserve. Markets expectations of a rate cut at the June meeting have now fallen to less than 20 per cent from 56 per cent before the US inflation data release. Inflation figures exceeded consensus expectations.

“We are pushing back our forecast of the first rate cut from June to July,” said Goldman Sachs analysts in a note. “We continue to expect subsequent cuts at a quarterly pace, which now implies two cuts this year versus the three we previously expected.”

Investor focus has now shifted to next week’s data dump including China’s first-quarter economic growth figures. Economic expansion probably slowed to 5 per cent in the first three months, moderating from a 5.2 per cent increase in the preceding three month, according to economists polled by Bloomberg.

Brite Semiconductor, which makes integrated circuits, jumped 150 per cent over its initial public offering price to close at 49.70 yuan in Shanghai.

Other major Asian markets were broadly lower as investors lowered their US rate cut bets. Japan’s Nikkei 225 and Australia’s S&P/ASX 200 both slipped 0.4 per cent, although South Korea’s Kospi rose 0.1 per cent

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