Hong Kong market closes down as property stocks fall on fears of US rate rise, though unlikely before December, say analysts

PUBLISHED : Monday, 29 August, 2016, 9:15am
UPDATED : Monday, 29 August, 2016, 10:56pm

Hong Kong stocks slipped on Monday while mainland markets closed flat after remarks from US Federal Reserve officials on Friday night raised concerns for a US interest rate rise as soon as September.

Hong Kong property stocks fell amid worries over higher mortgage costs resulting from a rate rise, but analysts still believe any increase won’t happen before December. They expect the market to maintain its current levels until the release of US non-farm payrolls data on Friday.

The Hang Seng Index dipped 0.38 per cent to 22,821.34 while the Hang Seng China Enterprises Index fell 0.55 per cent to 9,497.82.

Hong Kong property developers led the fall, followed by insurance, gaming, banks, jewellery and watch retailers, and energy stocks.

“The Federal Reserve’s remarks were somehow expected given that previous hawkish comments from Fed officials were meant to fine tune investor expectations,” said Mark To, head of research at Wing Fung Financial Group.

The market understood that the Fed was looking to “normalise” the pace of rate increases but they are stillconfident that central banks are hawkish for the short term but dovish over the long term, To said.

Sun Hung Kai Properties shares tumbled 1.8 per cent to HK$109, while Cheung Kong Property Holdings fell 1.18 per cent to HK$54.5.

Turnover on the main board shrank to HK$54.08 billion, compared with a daily average of above HK$60 billion last week.

“Yellen’s Jackson Hole speech echoed the views of FOMC members that the case for a rate hike is growing…the speech marginally increases the risk of a September hike, but our base case is still for the next hike in December,” analysts at Bank of America Merrill Lynch wrote in a report.

The [Yellen] speech marginally increases the risk of a September hike, but our base case is still for the next hike in December
Bank of America Merrill Lynch analysts

The market continues to assign a roughly 60 per cent chance of a December rate rise, the bank said.

Tang Kin-chor, associate director at CASH Securities, said investors still doubt whether the US economic data is strong enough to support a rate rise in the near term. He expects the Hong Kong market to swing around current levels before the US releases its August non-farm payrolls data on Friday.

Among sharp movers, casino operator Galaxy Entertainment was the worst performing blue chip, falling 3.78 per cent to HK$25.45.

However, luxury brands operater Prada saw its shares jump 12 per cent to close at HK$24.35, as the management said the company has bottomed out this year after it announced a 24.8 per cent year on year interim profit drop. Carmaker BYD Company rose 2.45 per cent to HK$52.25 after its interim net profit surged more than three times.

On the mainland, the Shanghai Composite Index closed 0.01 per cent or 0.28 points lower at 3,070.03 and the CSI 300 Index inched up 0.04 per cent to 3,308.39.

The Shenzhen Composite Index rose 0.2 per cent to close at 2,027.15. The Shenzhen Component Index rose 0.29 per cent to 10,724.4 and the Nasdaq style ChiNext was down 0.16 per cent to 2,193.2.

The environment, public utilities and construction sectors gained as officials at the Ministry of Finance visited public-private-partnership (PPP) projects in Hunan province to show their support for PPP and private investment.

Louis Tse Ming-kwong, director of VC Brokerage, said mainland China, which has its own monetary policy and does not need to follow US interest rate movements, would expect its stock markets to remain stable ahead of the G20 meeting starting in Hangzhou early next week.

However, earnings reports from two major mainland banks on Tuesday, such as Industrial and Commercial Bank of China and Bank of China, could bring pressure to the stock markets, he said.