Hong Kong stocks little changed ahead of expected weak bank earnings and possible US rate rise

Hang Seng Index drops 0.03 per cent to 22,814.95 points while the Hang Seng China Enterprises index loses 0.02 per cent to 9,504.78 points

PUBLISHED : Thursday, 25 August, 2016, 10:15am
UPDATED : Thursday, 25 August, 2016, 10:57pm

Hong Kong stocks were little changed at Thursday’s close of trading as investors remained cautious

ahead of market uncertainties.

Speculators will pay close attention to Federal Reserve chairman Janet Yellen’s speech on Friday for any clues on US interest rate moves while results announcement from the mainland’s biggest banks will also attract market scrutiny.

The Hang Seng Index dropped 0.03 per cent or 5.83 points to 22,814.95 while the Hang Seng China Enterprises index lost 0.02 per cent or 2.31 points to 9,504.78.

In Hong Kong, car-related stocks led the gains, up 0.89 per cent on average as a group, followed by the oil and gas sector which jumped 0.49 per cent. Agricultural products was among the biggest losers, down 0.72 per cent.

China’s second largest milk company Mengniu saw its share price rally 11.98 per cent to HK$14.58, leading the gains among the 50 constituent stocks of the Hang Seng Index. The price jump came after investment bank Citic said Mengniu’s business improvement is already evident despite its earnings falling 19.5 per cent in the first half.

Louis Tse Ming-kwong, a director of VC Brokerage, said investors were selling shares ahead of the expected poor earnings results of the big mainland banks.

Bank of Communications gained 0.17 per cent to HK$5.73 at Thursday’s close while China Construction Bank closed 1.39 per cent up. Agricultural Bank of China was down 0.64 per cent ahead of its performance announcement on Friday.

The mainland banks are haunted by non-performing loan problems
Louis Tse Ming-kwong, VC Brokerage

Bank of China as well as Industrial and Commercial Bank of China report their first-half earnings on Tuesday.

“The mainland banks are haunted by non-performing loan problems. It is expected their earnings will not be positive and this has put pressure on investors to sell,” Tse said.

Linus Yip Sheung-chi, First Shanghai Securities chief strategist, added: “The earnings of the mainland’s biggest banks are expected to surprise the market, and will not be that good I think.

“The bad loans and dividend ratios will be closely watched at these banks,” Yip said.

Tse said market watchers are also waiting for remarks by Yellen on Friday in which she will address the current state of the US economy and monetary policy, as well as give an indication of likely interest rate movements.

“The US may not definitely increase interest rates in September, but there is still a chance of a rate hike. Since the Hong Kong dollar is pegged to the US dollar, Hong Kong will need to move with the US interest rate movement,” Tse said.

“It is going to have an impact to the Hong Kong stock market. The market is likely to continue to be lacklustre.”

On the mainland, stocks closed lower on Thursday. The Shanghai Composite Index fell 0.57 per cent to 3,068.33, while the CSI 300 – which tracks large caps listed in Shanghai and Shenzhen – dropped 0.63 per cent to 3,308.97.

The Shenzhen Composite Index lost 0.55 per cent to 2,019.02, the Shenzhen Component Index was down 0.76 per cent to 10,679.15 while the Nasdaq style ChiNext shed 0.53 per cent to 2,180.66.