Hong Kong, China stocks higher Thursday, ignoring Moody’s ratings cut

Officials rebuff the downgrades, while analysts expect limited impact on financial markets. Hang Seng closes 0.8pc higher for the day

PUBLISHED : Thursday, 25 May, 2017, 9:20am
UPDATED : Thursday, 25 May, 2017, 9:56pm

Hong Kong stocks rose to a 22-month high and mainland stocks advanced on Thursday amid a risk-on sentiment in the region after the Fed signalled caution in raising interest rates.

The Hang Seng Index rose 0.8 per cent, or 202.28 points, to 25,630.78, the highest level since July 2015. Bullish sentiment was also reflected in the solid turnover of HK$82.2 billion. The Hang Seng China Enterprises Index, known as the H-shares index, advanced 1.7 per cent, or 180.73 points, to 10,571.60.

The minutes of the May 2-3 FOMC meeting appeared to point to a rate hike in June although the longer-term trajectory was becoming more uncertain.

“US market volatility is triggering flows into Hong Kong and emerging markets” Louis Tse Ming-kwong, managing director of VC Asset Management. “Hang Seng Index has broken major resistance of 25,500 and will test the July 2015 high while short-sellers in the futures market are being squeezed out with the end of the month approaching.”

Hang Seng Index futures spot May contract closed 0.8 per cent higher to 25,633 in the afternoon session.

Most blue chips and Chinese financials advanced, with Ping An Insurance jumping 3.4 per cent to HK$50.15, ICBC climbing 1.0 per cent to HK$5.16 and China Life Insurance gaining 2.0 per cent to HK$25.5.

HSCB rose 0.4 per cent to HK$67.65, and internet giant Tencent added 1.3 per cent to a new record-high of HK$277.2, while AIA fell 0.8 per cent to HK$54.55 on profit taking.

Investors shrugged off the latest cuts to Hong Kong and China’s credit ratings by Moody’s Investor Service, which cited concerns about China’s worsening debt outlook.

Finance officials from Hong Kong and China rebuffed the downgrades, while analysts expected the impact on the financial markets to be limited.

“Despite the very close economic relationship between Hong Kong and the mainland, we do not agree with the decision by Moody’s to mechanically downgrade Hong Kong’s rating following its downgrading of China’s credit rating,”said Paul Chan, Hong Kong’s Financial Secretary, in a statement on Thursday.

In the mainland, the Shanghai Composite Index rose 1.4 per cent, or 43.75 points, to 3,107.83. The large-cap CSI300 was up 1.8 per cent, or 61.49 points, to 3,485.66.

Both the Shenzhen Composite Index and the startup board ChiNext index reversed losses, rising 0.7 per cent at 1,811.90, and increasing 1.4 per cent to 1,777.69 respectively.

“ ... with only a tiny fraction of China’s debt denominated in dollars, there is little chance of an outright default: the People’s Bank of China can theoretically inflate away the debt,”said Daniel Christen and Mark Williams, analysts for London-based Capital Economics, in a note.

There is “little chance of a slump” in the Chinese equity markets, as P/E ratios are nowhere near the levels reached during the bubble in early 2015 and not particularly high relative to levels seen at other times in the past, they added.

On Wednesday night in the US, the S&P 500 and the Dow Jones Industrial Average both closed higher for a fifth straight day.

The S&P 500 was up 0.3 per cent to an all-time high of 2,404.39. The Dow finished 0.4 per cent higher at 21,012.42. The Nasdaq Composite Index rose 0.4 per cent to close at 6,163.02.