Hong Kong Stock Exchange

Oil prices lead Hong Kong stocks higher despite caution ahead of US jobs numbers

The Hang Seng Index closed the day up 0.42 per cent thanks to rising oil shares, but the market is nervous about possible US interest rate hikes

PUBLISHED : Wednesday, 05 October, 2016, 9:13am
UPDATED : Wednesday, 05 October, 2016, 10:06pm

Rising oil prices helped buoy the Hong Kong markets on Wednesday, but sentiment remained cautious ahead of an anticipated interest rate hike in the United States, analysts said.

The Hang Seng Index ended the day up 0.42 per cent or 98.87 points at 23,788.31, while the Hang Seng China Enterprises index moved up 0.56 per cent or 54.41 points to 9,811.18.

Oil stocks rose on Wednesday off the back of rising crude prices, with oil futures hitting a three-month high of US$49.15 a barrel in New York. Oil prices have been on the rise since OPEC agreed last week to cut production for the first time in eight years.

PetroChina, the most heavily traded share, led gains among HSI 50 constituents, rising 3.08 per cent to HK$5.35. China Oilfield leapt to a three-month high, up 6.93 per cent to HK$7.72, while CNOOC rose 3.79 per cent, finishing the day at HK$10.14.

But market sentiment remained cautious, as investors anticipate the European Central Bank scaling down its quantitative easing and the US Fed raising interest rates, KGI Asia director Ben Kwong Man-bun said.

“I think the investor will still focus on the upcoming job data on Friday to assess the pace of the interest rate hike and also the schedule of the interest rate hike in the US,” he said.

“The index may still have a sideways movement pending more direction.”

Fears over a possible hike hurt interest rate-sensitive stocks and property stocks, Kwong said, with Henderson Land falling 0.64 per cent and New World Development slipping 0.79 per cent.

The banking and insurance sectors gained as investors’ concerns eased over Deutsche Bank, which is facing heavy fines in the US for mis-selling securities, after its shares recovered on client support.

Bank of China Hong Kong added 0.05 per cent, while the world’s largest bank by assets, ICBC, jumped 0.20 per cent.

Mainland markets are closed this week for the national holiday, causing turnover to remain thin, at HK$52.34 billion, due to the lack of southbound flows.

Wilson Tang, equities specialist head at DBS Bank Hong Kong, said he is “bullish” over trading in the coming months.

In the third quarter, the city’s benchmark index has already achieved the best quarterly performance in seven years, up 12 per cent on the support of southbound inflows from the mainland through the Shanghai-Hong Kong Stock Connect trading link.

I expect the benchmark index will test 24,900 in the fourth quarter as the valuations of Hong Kong stocks are relatively low
Wilson Tang, equities specialist head at DBS Bank Hong Kong

“I expect the benchmark index will test 24,900 in the fourth quarter as the valuations of Hong Kong stocks are relatively low,” he said.

“The global volatilities caused by the US election and Brexit will also drive inflows into the Hong Kong market.”

There is increasing concern over possible US rate hikes, following hawkish comments from Richmond Fed President Jeffrey Lacker, a non-voting Fed member, who said on Tuesday he would have voted to increase rates in September and wants higher interest rates in future.

The US non-farm payrolls data out this Friday will attract a lot of market attention, as it is likely to provide clues on possible US rate rises.

Overnight on Wall Street, all major indices dropped. The Dow Jones Industrial Average fell 85.40 points, or 0.47 per cent, to 18,168.45. The S&P 500 declined 10.71 points, or 0.5 per cent, to 2,150.49, and the Nasdaq Composite slipped 11.22 points, or 0.21 per cent, to 5,289.66.

Markets were also keeping a close eye on struggling Deutsche Bank, while the Brexit process is also a big concern for investors.

British Prime Minister Theresa May’s announcement that she will formally begin negotiations to leave the European Union early next year sent the British pound to a 31-year low on Tuesday.

In Asian trading on Wednesday, Tokyo’s Nikkei 225 added 0.50 per cent to 16,819.24, but shares retreated in Australia and South Korea.

Hong Kong stocks listed in the US as American Depository Receipts (ADRs) mostly closed lower than their Hong Kong counterparts after conversion into the local currency. China Petroleum & Chemical ’s ADR ended 0.5 per cent lower at HK$5.70, compared with its Hong Kong close of HK$5.63. Cnooc dropped 0.63 per cent to HK$9.71. Yanzhou Cola declined 2.01 per cent to HK$5.32.