Turnover down for third day as capital outflow concerns continue to weigh on Hong Kong stocks

Trading on the Hong Kong stock exchange continued to be lacklustre on Thursday, with turnover down for a third straight day as investor concern over capital outflows amid expectations of interest rate increases refused to go away.

The turnover on the main board touched HK$79 billion (US$10.06 billion), 17 per cent lower than Monday’s HK$95.7 billion. This figure has stayed below HK$100 billion in the past six sessions –

in the first seven months of the year, the average daily turnover was HK$121 billion.

“It’s very likely the [US] Federal Reserve will increase rates again next month,” said Conita Hung, director of investment strategy at Gransing Securities. “The chance is high that Hong Kong will follow suit. If Hong Kong doesn’t, the widening interest difference will further increase capital outflow pressure, which in turn will weigh on the stock market.”

Hung said another uncertainty was any potential response by China to US tariffs on US$200 billion worth of Chinese goods next month, which might further weaken the yuan or trigger tit-for-tat tariff measures.

Capital outflows have accelerated this month, and the Hong Kong Monetary Authority – the city’s de facto central bank – has had to intervene in the currency market on eight occasions to defend the local currency after the Hong Kong dollar hit the 7.85 level, the weak end of its peg to the US dollar. Its intervention has resulted in a reduction in the city’s aggregate balance, which measures the liquidity of the banking system, to its lowest level since 2008.