Hong Kong stocks close lower on US rate rise concerns

Banks were among the best performers while property developers underperformed

PUBLISHED : Thursday, 02 March, 2017, 9:08am
UPDATED : Thursday, 02 March, 2017, 10:16pm

Hong Kong stocks erased morning gains to close lower on Thursday after a rally in early trading shifted to a cautious investment tone with the increased potential for a US interest rate increase this month.

The Hang Seng Index fell 0.2 per cent or 48.4 points to 23,782.1 while the Hang Seng China Enterprises Index dropped 0.4 per cent to 10,246.9. Market turnover on the Hong Kong main board was HK$82.1 billion, slightly higher than Wednesday’s HK$76.2 billion.

Expectations for a US interest rate increase in March have grown after Fed officials, including dovish Fed Governor Lael Brainard, showed their support for a rate rise “sooner”.

The markets have now shifted their focus to an address by US Federal Reserve chairwoman Janet Yellen on Friday which may offer clues on the possible interest rate rise.

DBS said the chance of a US interest rate increase in March has soared to 80 per cent from last Friday’s 40 per cent.

Dickie Wong, executive director of research at Kingston Financial Group, echoed the view, expecting that the US rate is more likely to increase in March. “If it doesn’t happen in March, it definitely comes in June,” added Wong.

In Hong Kong, stocks sensitive to a US rate hike were affected, either positively or negatively. Banks were among the best performers, with Standard Chartered jumping 2.3 per cent and HSBC adding 1.0 per cent.

However, property developers were under pressure. Cheung Kong Property was the biggest loser among the HSI 50, dropping 1.6 per cent to HK$52.3. Sun Hung Kai Properties weakened 1.1 per cent to HK$ 114.3 and Wheelock & Co declined 1.5 per cent to HK$51.2. Chinese Estates Holdings edged 0.2 per cent lower to HK$11.9, in line with the benchmark, after controlling shareholder Joseph Lau Luen-hung transferred his stake in the company to his wife and son due to a “very unstable health condition”.

“Even if the Fed raises interest rates in March, the US benchmark rate will rise only 25 basis points. It doesn’t change the overall low-interest-rate environment,” said Francis Kwok Sze-chi, managing director at Freeman Securities.

Wong said, however, the higher interest rate will see a stronger dollar, which will lead to a softer Chinese yuan. “The weaker yuan would reduce profitability of some Hong Kong-listed mainland companies, thus putting downside pressure on mainland and Hong Kong markets to some extent,” he added. The US dollar Index DXY added 0.2 per cent to 101.9 on Thursday.

Markets are also paying attention to the National People’s Congress meeting, an annual parliament-style gathering of delegates from all over China, during which Premier Li Keqiang is due to declare the nation’s annual growth target, fiscal budget and work focus for the government in 2017.

Issues including environmental protection and state-owned enterprise reform are expected to be widely discussed during the meeting.

Related shares rallied, with Kangda International Environmental jumping 6.8 per cent to HK$2.1 and Guangdong Investment adding 2.3 per cent to HK$10.8. China Water Industry Group increased 1.3 per cent to HK$1.6 while China Water Affairs Group added 0.6 per cent to HK$5.0.

“I don’t think the shares in environmental and agriculture sectors, which could gain some rising momentum from the national meetings, will remain strong as they have already digested some of good news,” said Wong.

On the mainland, stock benchmarks struggled to maintain Wednesday’s level in the morning but declined to close lower on Thursday afternoon.

The Shanghai Composite Index closed 0.5 per cent lower at 3,230.0, up 1 point. The CSI 300 Index shed 0.7 per cent to 3,435.1. The Shenzhen Component Index edged down 0.5 per cent to 10,367.3 and the Nasdaq-like ChiNext retreated 0.6 per cent to 1,920.4.

SF Express shares dropped 3 per cent to 67.9 yuan, amid mainland media reports that Chinese authorities were closely watching the logistics and delivery service provider, which has risen sharply since completing a back-door listing last week.

Additional reporting by Jennifer Li