Hong Kong stocks notch slight gain amid concerns over capital outflows

Hong Kong Monetary Authority steps into currency market to defend local dollar

PUBLISHED : Tuesday, 28 August, 2018, 7:22pm
UPDATED : Tuesday, 28 August, 2018, 8:36pm

Hong Kong stocks ended slightly higher on Tuesday, up for a second day in a row, but analysts remained cautious about market outlook as the city’s currency fell again to hit the weak end of its peg against the US dollar because of continued capital outflows.

The Hong Kong Monetary Authority, the city’s de facto central bank, stepped into the currency market several times on Monday and Tuesday to defend the Hong Kong dollar. It bought HK$3.93 billion while selling US$500 million in Monday early evening trade, after the Hong Kong dollar hit the 7.8500 per US dollar level, the weak end of its peg. It bought a further HK$2.80 billion during New York trading hours on Monday night and another HK$7.85 billion on Tuesday afternoon.

The Hang Seng Index was up by 0.3 per cent, or 80.35 points, at 28,351.62. The Hang Seng China Enterprises Index, also known as the H-shares index, rose by 0.4 per cent, or 48.46 points, to 11,097.59. The daily turnover decreased slightly to HK$90.5 billion (US$11.53 billion), down 5 per cent from Monday.

Nonetheless, analysts were concerned about the outlook in the short term.

“The Hong Kong dollar has dropped to the weak end of its currency peg again, triggering the city’s monetary authority to intervene in the market and defend the currency,” said Alvin Cheung, associate director at Prudential Brokerage.

“It shows capital keeps flowing out of Hong Kong, which will continue to weigh on the stock market,” he added. Cheung said he expected the city’s interest rates to rise higher as liquidity tightens in the banking system.

The monetary authority’s intervention has resulted in a rapid decline in the city’s banking liquidity, reducing the city’s aggregate balance by more than 20 per cent this month to HK$76.35 billion.

On the stock market, Country Garden was the worst-performing blue chip stock, down by 3.3 per cent to HK$11.74. The decline follows a Reuters report on Monday, which quoted Malaysian prime minister Mahathir Mohamad as saying that foreigners would not be granted visas to live in the Forest City project, which is being developed by Country Garden in Johor state and has been predominantly sold to Chinese investors.

Elsewhere, ZhongAn Online Property and Casualty Insurance sank 7.4 per cent to HK$35.20, after reporting its losses had widened to 656 million yuan (US$96.4 million) for the first half.

Bourse operator Hong Kong Exchanges & Clearing advanced by 1.9 per cent to HK$230.20, after Morgan Stanley raised its rating for the stock to “hold”, on expectations that overseas investors will increase their holdings of China’s A shares, boosting trading volumes of the Stock Connect programme.

The pipeline of new economy flotations on the Hong Kong market is also expected to increase the volumes of the Hong Kong exchange.

Chinese financial shares were mixed, with some banks expected to announce their interim results after market close. Bank of China rose by 0.8 per cent to HK$3.63 and Bank of China (Hong Kong) inched up 0.1 per cent to HK$39.25. But the Agricultural Bank of China dropped by 0.3 per cent to HK$3.80 and China Construction Bank ended flat at HK$7.11.

On the mainland, the Shanghai Composite Index dipped by 0.1 per cent to end at 2,777.98, down for the first time in four days. The Shenzhen Component Index ticked up 0.1 per cent to 8,733.75.

The combined turnover for the Shanghai and Shenzhen markets decreased by about 10 per cent to 291.4 billion yuan compared with Monday.

Bank of China’s A shares rose by 0.3 per cent to 3.56 yuan. China Construction Bank’s Shanghai-listed stock also gained by 0.6 per cent to 6.95 yuan. But the Agricultural Bank of China’s A shares fell by 0.6 per cent to 3.62 yuan.

Additional reporting by Karen Yeung