Across The Border

Hong Kong stocks close higher as US dollar retreats, Shenzhen prepares for stock connect debut

Hang Seng Index closes 0.46 per cent higher at 22,323.91 on Tuesday while the Hang Seng China Enterprises Index gains 0.59 per cent to 9,398.10

PUBLISHED : Tuesday, 15 November, 2016, 9:33am
UPDATED : Tuesday, 15 November, 2016, 10:17pm

Hong Kong stocks reversed two days of declines to close higher on Tuesday as the US dollar retreated from recent highs and the Shenzhen Hong Kong Stock Connect prepared for its debut.

The Hang Seng Index ended the day up 0.46 per cent or 101.69 points at 22,323.91 while the Hang Seng China Enterprises Index jumped 0.59 per cent or 55.23 points to 9,398.10.

The US dollar index, a measure of the greenback against a basket of global peers, was 0.23 per cent weaker in Asia on Tuesday, snapping a seven-day winning streak after reaching a one-year high of


The retreat of the US dollar left Asian markets firmer after US Treasury yields, at a one-year high on Monday, weighed on Hong Kong stocks, dragging them down 3.72 per cent in the previous two trading days.

I treat today’s rise as a technical rebound after a big fall before
Linus Yip Sheung-chi, First Shanghai Securities

“I treat today’s rise as a technical rebound after a big fall previously,” said Linus Yip Sheung-chi, chief strategist at First Shanghai Securities. “I expect a fluctuation in Hong Kong stocks amid volatile global markets this year.”

Tuesday’s gains were led by strong performances from health and personal care stocks, up 1.42 per cent, and insurance companies, which rose 1.37 per cent.

China Life Insurance added 2.06 per cent to HK$19.8 and PICC Property and Casualty gained 2.53 per cent to HK$12.14.

“With a weakening yuan, more Chinese mainland people will come to Hong Kong to buy insurance to hedge the risks of the weaker currency,” added Yip. “The trend will not change in the short term, I believe.”

But restrictions on mainlanders using UnionPay to buy insurance investment products in Hong Kong continued to weigh on AIA Group, dragging it to its lowest level since July, as its stock lost 1.26 per cent to HK$47.20.

The index-weighted stock Tencent rebounded slightly from a three-month low on Monday, increasing 0.31 per cent to HK$193.20 ahead of its third quarter results announcement on Wednesday.

The Shenzhen Stock Exchange announced it will carry out its fifth system test on Saturday. The test paves the way for the official launch of the highly anticipated stock connect trading mechanism. However, Yip said he does not expect a strong impact from the new link.

“Only some selective stocks are likely to jump, such as brokerages and technology companies,” he said.

The new stock connect is unlikely to make a significant difference to southbound flows from the mainland since the Hong Kong-Shanghai Stock Connect has already been in place and is underperforming its asset quotas, according to Alex Wong Kwok-ying, asset management director at Ample Capital.

“Asia basically is a closed ecosystem,” he said. “We don’t see much inflow from China to Hong Kong.”

Also weighing on the markets are increasing concerns about the US Federal Reserve raising interest rates in its December meeting, according to Yip.

While analysts still anticipate this will happen, Donald Trump’s win in the US presidential election could delay the move into next year.

“If there’s tighter financial conditions as a result of this election, perhaps a rate rise will be off the table,” Mark Doms, managing director and senior economist at Nomura, said last week.

“We continue to believe the Fed will raise rates in December... but risks have fallen,” said John Woods, chief investment officer for Credit Suisse in Asia-Pacific.

On the mainland, the Shanghai Composite Index closed slightly down, falling 0.11 per cent to 3,206.99, while the CSI 300 — which tracks the large caps listed in Shanghai and Shenzhen — was 0.01 per cent lower at 3,429.87.

The Shenzhen Component Index rose 0.46 per cent or 50.57 points to 10,958.10 while the Shenzhen Composite Index gained 0.48 per cent and the Nasdaq-style ChiNext was up 0.82 per cent to 2,179.30.

China Vanke rose 4.82 per cent to 26.94 yuan in Shenzhen following China Evergrande Group’s announcement of an increased stake in the company.

Overnight on Wall Street, there were mixed fortunes for US stocks. The decline in the technology sector dragged the Nasdaq Composite down 18.72 points, or 0.36 per cent, to 5,218.40. The S&P 500 broke a five-month winning streak with a 0.1 per cent loss, closing at 2,164.20, while the Dow Jones industrial average hit a new all-time high, adding 0.11 per cent on Monday to close at 18,868.69.

Elsewhere in Asia, Tokyo’s Nikkei 225 lost 0.03 per cent to 17,668.15, the Seoul Kospi fell 0.35 per cent and Sydney’s All Ordinaries fell by 0.38 per cent.

Additional reporting by Celia Chen

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