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Exterior view of Hong Kong Stock Exchange. Photo: EPA

UpdateHong Kong stocks fall for third day to close at 4-month low

Shanghai shares retreat as yuan borrowing costs continue to surge amid tight liquidity


Hong Kong stocks fell Monday for a third straight session to close at their lowest level in more than four months.

Analysts said capital outflow pressure persisted after the Federal Reserve added one more rate increase to its 2017 outlook, while traders were reluctant to increase positions as the holiday season nears.

Shanghai and Shenzhen shares also pulled back, as yuan borrowing costs among commercial banks continued to surge amid tight liquidity in mainland China.

Hong Kong’s benchmark Hang Seng Index declined 0.9 per cent or 188.07 points to close at 21,832.68, the worst level it has seen since August 4. The index has fallen for three straight sessions. The Hang Seng China Enterprises Index, known as the H-shares index, ended 1 per cent or 92.9 points lower at 9,377.43.

Turnover for Hong Kong markets dropped sharply to HK$56 billion, down 22 per cent from HK$72 billion at the end of last week.

“As US rates head higher, Hong Kong stocks could face further pressure as capital flows out of the market,” said Ben Kwong Man-bun, executive director of KGI Asia.

The Federal Reserve raised its benchmark rate by 25 basis point last week, as widely expected, but surprised investors by projecting three rate increases next year.

Mainland China markets also struggled with tighter liquidity, as capital outflow pressure persists amid growing expectations of a weaker yuan.

On Monday, the China’s Shanghai Composite Index edged down 0.2 per cent or 4.9 points to close at 3,118.08. The Shenzhen Composite Index fell 0.4 per cent or 7.53 points to 1,984.10.

Turnover for Shanghai and Shenzhen markets decreased to 400 billion yuan from Friday’s 434 billion yuan.

The overnight Shanghai Interbank Offered Rate, or Shibor, a measure of yuan borrowing costs among Chinese commercial lenders, rose for a fifth straight session on tight liquidity.

Analysts said the People’s Bank of China (PBOC) has been running down foreign reserves to prop up the yuan, which has also drained liquidity from money markets.

They also expected the Chinese central bank to tighten monetary policy a little in order to curb capital outflows and reduce leverage in the corporate sector.

China’s monetary policy will be pursued in a “neutral” manner in the coming year, a departure from last year’s “flexible” stance, according to an analysis by Macquarie Capital’s Larry Hu, parsing the Communist Party’s Central Economic Work Conference last Friday.

“While it’s premature to hike the benchmark 1-year deposit rate, the PBOC will likely guide the interbank rates higher and more volatile,” said Hu.

“Regulation will also remain tightened, evidenced by the recent curbs on equity investment by insurance money.”

Among other major stock indices in the mainland, the large-cap CSI300 dropped 0.5 per cent or 17.05 points to 3,328.98. The Shenzhen Component Index lost 0.5 per cent or 51.6 points to 10,283.16. The Nasdaq-style ChiNext Index settled 0.9 per cent or 17.7 points lower at 1,980.41.

Insurers and property shares were weak.

Ping An Insurance fell 1.7 per cent to HK$39.75 in Hong Kong. Its Shanghai-listed shares shed 0.2 per cent to 35.4 yuan.

China Vanke fell 3.2 per cent and 6.1 per cent in Hong Kong and Shanghai respectively, to close at HK$18.72 and 21.1 yuan. The mainland Chinese property developer scrapped a white knight rescue plan involving Shenzhen Metro, which was intended to help it fend off a hostile takeover.

Hong Kong developers also declined, with Cheung Kong Property down 1.3 per cent to HK$49.7.

Banks retreated, as HSBC Holdings lost 0.3 per cent to HK$63.75, and Bank of China Hong Kong finished 1.3 per cent lower at HK$27.35.

This article appeared in the South China Morning Post print edition as: Higher credit costs keep shares under pressure