Daily Report

Hong Kong stocks slip after US high-speed rail talks hit buffers

Sentiment also affected by a lack of economic drivers during the rest of June

PUBLISHED : Friday, 10 June, 2016, 9:19am
UPDATED : Friday, 10 June, 2016, 7:34pm

Hong Kong stocks dipped in reaction to a US firm calling off a high-speed train deal with China.

Las Vegas-based XpressWest said on its website it had terminated joint-venture activities with China Railway International, regarding high-speed passenger services.

The Hang Seng Index widened early losses to close 1.2 per cent or 255.24 points lower to 21,042.64. The Hang Seng China Enterprises Index declined 2.2 per cent or 195.85 points to 8,831.97.

Castor Pang Wai-sun, Core Pacific Yamaichi head of research, said XpressWest’s termination of the train deal hit the Hong Kong market hard.

“The failed deal signals China cannot rely too much on overseas high-speed train deals to stimulate its economy,” said Pang, adding there was also lingering concerns that China’s One Belt, One Road may “meet some obstacles”.

“The failed deal signals China cannot rely too much on overseas high-speed train deals to stimulate its economy.”
Castor Pang Wai-sun, Core Pacific Yamaichi head of research

The cancellation of the XpressWest talks was widely felt by Chinese railroad sector stocks.

China Railway Construction, the country’s largest railroad construction and engineering company, sank 5.41 per cent to close at HK$9.45. Rival China Railway Group also declined 4.75 per cent to end at HK$5.81. CRCC Corp, state-owned rolling stock manufacturer, lost 4.45 per cent to close at HK$7.08.

Gold shares surged, however, after a Wall Street Journal report said billionaire investor George Soros had returned to the market after a long break from trading and had directed a series of bearish investments, including selling stocks and buying gold and gold-mining shares, as he sees economic troubles coming.

China Gold International Resources Corp surged 8.04 per cent to HK$14.78 while Zhaojin Mining Industry Company jumped 2.43 per cent to HK$7.17.

Soros selling stocks will, however, reduce investment into stock markets globally, said Pang.

Hong Kong stocks are also likely to face downward pressure if total investment decreases, he said, but there is still a lack of economic drivers for a June recovery

Shanghai and Shenzhen stock markets were closed on Friday, but Pang also predicted mirror falls when they reopen on Monday, due to that lack of stimulus.

“The Euro 2016 football championships kicking off seems more interesting than A-shares if there is no bullish factor in the market.” Pang said.

The one-month tournament taking place in France kicks off on Saturday, involving 24 national teams from around Europe.

China’s National Bureau of Statistics reported Thursday that its consumer price index rose 2 per cent in May from a year earlier, down from a 2.3 per cent increase in April, mainly dragged down by declining food prices.

The tally missed market expectations of a 2.3 per cent increase in a Reuters survey of analysts.

Meantime, the country’s producer price index continued to decline in May, down 2.8 per cent from a year earlier, although still a rebound from a 3.4 per cent drop in April.

“The upshot is that inflation is unlikely to become a big concern for policymakers this year, allowing them to focus on more pressing issues such as financial stability and structural reform,” said Julian Evans-Pritchard, China economist for Capital Economics.

He also anticipated a further recovery in producer price inflation in the coming quarters as commodity price deflation continues to ease.