Daily Report

Hong Kong market may see profit taking as investors worry recovery has little support

Stocks brace for a bumpy ride as investors await further clues to MSCI decision on A-shares inclusion

PUBLISHED : Monday, 06 June, 2016, 9:29am
UPDATED : Monday, 06 June, 2016, 7:20pm

With Hong Kong’s benchmark Hang Seng Index hitting a one-month high investors may be tempted to take profit because they see little support for a continued market recovery, analyst said.

The Hang Seng Index closed 0.4 per cent or 82.98 points higher to 21,030.22 on Monday, while the Hang Seng China Enterprises Index also jumped 0.63 per cent or 55.54 points to 8,865.35.

Among the top five active shares in Hong Kong, China’s second biggest internet company Tencent was the biggest gainer, up 1.46 per cent to its highest level since its IPO debut. It was the most heavily traded stock in Hong Kong, with turnover reaching HK$2.52 billion. China Construction Bank was the next biggest gainer, up 1.57 per cent to HK$5.17.

Hong Kong stocks continue to rise on expectations that A-shares would be included in the MSCI index this month and on anticipation of the launch of the Shenzhen Hong Kong Stock Connect, said Victor Au, chief operating officer at Delta Asia Financial, but he warned that profit taking was just around the corner.

The outlook for an imminent US Federal Reserve rate hike grew uncertain after the US jobs growth report in May significantly disappointed, which was also a relief for Hong Kong stocks, he added.

“The much weaker-than-expected US jobs growth in May has dampened risk sentiment and lifted safe-haven assets like gold. Investors are reassessing the possibility of a Fed rate hike in the short term,” Guodu Securities Hong Kong analysts wrote in a note on Monday. “We expect Hong Kong stocks to tread carefully.”

The much weaker-than-expected US jobs growth in May has dampened risk sentiment and lifted safe-haven assets like gold
Guodu Securities analysts

These factors have seen Hong Kong stocks rebound strongly recently to reach a one-month high. However, Au warned that investors may take profits if the benchmark maintains a high level because there was no support for the strong rebound .

“It is highly possible that Hong Kong stocks will come under offload pressure later this week and before MSCI’s decision on A-share inclusion,” said Au. “The annual MSCI review on June 15 is expected to bring high volatility to Hong Kong stocks. Investors would definitely like to take profit before the possible turbulence.”

On the mainland, the Shanghai Composite Index closed lower on Monday, down 0.16 per cent to 2,934.10. The CSI300 dipped 0.33 per cent to 3,178.79. However, the Shenzhen Composite Index bucked the trend and rose 0.28 per cent to 1,920.12. The Nasdaq-style ChiNext Index ticked down 0.26 per cent to 2,199.30.

Goldminers rose sharply as the dismal US nonfarm payrolls report sparked a surge in the US dollar-denominated price of gold. In Shanghai, Shandong Gold Mining soared 7.5 per cent to 31.54 yuan, Zhongjin Gold improved by 4.6 per cent to 10 yuan, and Zijin Mining Group jumped 1.9 per cent to 3.11 yuan.

In Shenzhen, Hunan Gold Corp leapt 6.5 per cent higher to 12.34 yuan, while in Hong Kong, Zijin Mining shot up 4.48 per cent to HK$2.33.

The 38,000 US jobs added in May widely missed market expectations and pushed the US dollar to a three-week low on Friday, lifting USD-denominated prices of precious metals.

Investors will be watching for further clues on the direction of US interest rate hikes later on Monday US time as Federal Reserve Chairwoman Janet Yellen is scheduled to speak in Philadelphia.