Daily Report

Hong Kong, Shanghai markets thumped as jitters send investors to safe-haven assets

Nerves jangled by possible departure of the UK from the EU, and a slew of weakened Chinese economic indicators for first five months.

PUBLISHED : Monday, 13 June, 2016, 11:08am
UPDATED : Monday, 13 June, 2016, 7:23pm

Chinese stocks plunged on Monday, amid a regional stock rout, as nervy investors fled to safe-haven assets due to fears over a potential UK departure from the European Union, and the prospect of weaker China’s economic growth.

The benchmark Shanghai Composite Index posted its steepest daily percentage decline since February 25, down 3.2 per cent or 94.09 points, to close at 2,833.97.

Startup stocks led losses in the broader A-shares market, as the Nasdaq-style ChiNext Index plunged 6 per cent or 131.83 points to close at 2,054.71.

The Shenzhen Composite Index also sank 4.8 per cent or 91.26 points to end at 1,827.36. The CSI300, which tracks large companies listed in Shanghai and Shenzhen, tumbled 3.1 per cent or 97.65 points to finish at 3,066.34.

Combined turnover for the Shanghai and Shenzhen markets rose to 589 billion yuan from Friday’s 546 billion yuan.

The steep losses in mainland markets came after China released a raft of key economic indicators for the first five months of the year, among which fixed-asset investment (FAI) recorded an unexpectedly large drop in growth to 9.6 per cent year-on-year.

On a single monthly basis, FAI growth decelerated to 7.5 per cent in May from 10.1 per cent in April.

“State sector investment remained strong....but private sector investment growth continued to slow and barely expanded at all last month,” said Julian Evans-Pritchard, a China economist for Capital Economics.

The risk is growing that as policy support wanes, the [Chinese] economy could face another downturn
Julian Evans-Pritchard, a China economist for Capital Economics.

“The continued deceleration of private-sector investment means the risk is growing that as policy support wanes, the economy could face another downturn,” he added.

Beyond the worse-than-expected economic numbers, worries that Britain may vote to leave the European Union on June 23 also left investors jittery in global financial markets, pushing down prices of riskier assets such as equities.

In Hong Kong, the benchmark Hang Seng Index also closed sharply lower, off 2.5 per cent or 529.65 points to 20,512.99. The Hang Seng China Enterprises Index, which measures the performance of Hong Kong-listed Chinese companies, finished down 2.4 per cent or 212.05 points at 8.619.92.

“It appears now there is a higher chance for Britain to leave the European Union,” said Ben Kwong Man-bun, executive director and head of research of KGI Asia.

“This has created uncertainties for the pound and begun to affect markets worldwide, including Hong Kong.

“The Hong Kong stock market has risen four weeks in a row. It is time for investors to find an excuse to sell. Meanwhile, some hedge funds such as George Soros have been shorting the markets recently which also added to worries,” he added.

Looking ahead, analysts said investors may have to brace for further volatility, as uncertainty lingers over a number of key future events that could affect investor sentiment.

Bernard Aw, an analyst for IG Group, said he expected increased market volatility this week and next.

“The tide surrounding the Brexit will quickly shift as headline polls drive trading.

“While there are no expectations for action from the Fed and the Bank of Japan, their post-decision comments will still matter. In particular, the Fed’s economic projections will be scrutinised.”

Aw said the MSCI decision regarding A-share inclusion on Wednesday may also be “market-moving”.

All sectors in mainland markets were in the red except gold shares, which saw a slight increase of 0.4 per cent on average, driven by safe-asset buying.

Tech stocks were among the hardest hit. Shenzhen-listed Thunder Software Technology, Baofeng Group, Sichuan Xunyou Network Technology and Bringspring Science & Technology all hit the 10 per cent daily-fall limit.

However, Shandong Gold Mining surged 8.4 per cent to 33.84 yuan, and Zhongjin Gold jumped 5.5 per cent to 10.5 yuan.

In Hong Kong, stocks with UK-related business were hit in particular, as Sino-British banking giant HSBC Holdings declined 2.9 per cent to HK$47.9, and Standard Chartered Bank lost 4.4 per cent to HK$56.65.

Elsewhere in Asia, investors also dumped equities, with Japan’s Nikkei Average plunging 3.5 per cent to close at 16,019.18, while the yen, traditionally considered a safe-haven currency, surged against the US dollar. South Korea’s Kospi settled 1.9 per cent lower at 1,979.06. Australian markets were closed for a public holiday.

With additional reporting by Enoch Yiu and Xie Yu.