Hong Kong stocks slide as a resurgence in coronavirus cases shakes optimism for swift economic recovery

Hang Seng Index completes a third straight day of decline as coronavirus cases surpass 10 million globally since outbreak
China’s industrial profits rose last month for the first time since November, may support buying in mainland stocks

Hong Kong stock market

Iris Ouyangin Shenzhen

Published: 10:13am, 29 Jun 2020

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Hong Kong equities slumped by the most in two weeks, in tandem weaker regional stock market, after a resurgence in coronavirus infections from Beijing to Melbourne and several US cities threatened to erode optimism for a swift economic rebound.

The Hang Seng Index closed 1 per cent lower to 24,301.28 on Monday, its third straight day of losses. Only seven out of 50 index components eked out gains. The Shanghai Composite Index ended the day with a 0.6 per cent decline to 2,961.52, snapping a two-day winning streak.

“People are worried that economic opening globally would not be easy and economic recovery may be weak because of the rebound of coronavirus after [recent] economic reopening,” said Stanley Chan, director of research at Emperor Securities. “Investors are re-evaluating the risks to the stock market.”

In today’s market actions, consumer discretionary and information technology stocks led the pullback in Hong Kong, while Chinese stock brokerages suffered a sell-off on reports the government will give new licenses to local banks to compete with them.

Geely Automobile declined 2.9 per cent. Sunny Optical Technology shed 2.5 per cent. AAC Technologies fell 2.2 per cent. Index heavyweight Tencent Holdings gained 0.2 per cent. Techtronic Industries rose 1.1 per cent. China Construction Bank gained 1.1 per cent.

Global death toll from the pandemic surpassed 500,000 on Sunday, with infection cases at more than 10 million since the outbreak late last year, according to a Johns Hopkins University tally.

China on Sunday imposed a strict lockdown on nearly half a million people in Anxin county about 140km south of Beijing to contain the cluster, with one city official saying the situation was “severe and complicated.” In Victoria, Australia, citizens faced renewed lockdown fears as new hotspots emerged.

Before today, the Hang Seng Index has climbed more than 6 per cent in June, and 3.4 per cent for the quarter, buoyed by inflows of hot money chasing after several large-sized stock offerings by technology and Chinese e-commerce entities.

“Traders are taking profit in the middle of the year after new economy stocks recorded big gains,” said Gordon Tsui, chairman of Hantec Pacific, a stock broker and wealth management firm. “The market outlook will depend on development of the coronavirus.”

Economists recently have warned of a prolonged downturn as the global economy faces a second wave of the viral outbreak. Top executives like DBS Group’s CEO Piyush Gupta have also warned of possible market corrections, with stocks prices at levels out of sync with economic reality.

Investors are also focused on China’s impending implementation of the national security law tailor-made for the city with protests being planned on the 23rd anniversary of the city’s handover on July 1. The move has stoked political debates and fights between China and the US and Europe over Hong Kong’s autonomy.

Tsui noted the market has highly expected the law to come into force, so that the impact on the market would likely be short-term. The Hang Seng Index could advance by about 7 per cent to 26,000 over the next one month, he added.

On the mainland, stock brokerage firms were the big losers on news that China’s market regulator plans to issue brokerage licenses to onshore commercial banks, heightening competition. A gauge tracking 52 such firms traded on mainland exchanges declined by 2.6 per cent.

The China Securities Regulatory Commission said it has no extra information that it needs to convey to the market, adding any new plan in any means would not cause big shocks to the current industrial landscape.

Zhongtai Securities declined 9.6 per cent, while BOC International slumped 6 per cent, and Hongta Securities dropped 5.8 per cent.

Beyond the viral outbreak, investors are looking forward to US job report for June on Thursday. The consensus in a Bloomberg survey is for 3 million of job gains, on top of 2.5 million in May. Revisions are expected, however.

Investors are also digesting relatively positive news from China, where industrial profits rose for the first time since November. The rebound is seen enhancing confidence that China’s economic recovery may be further accelerating, fuelled partly by measures to boost funding to small businesses and manufacturers.

The People’s Bank of China said on Sunday it will innovate and use various monetary policy tools to make sure liquidity is abundant, and will implement well the newly created tool for directing liquidity to the real economy.

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