Banking stocks lead decline in Hong Kong after Federal Reserve defies expectations on rate increases next year

  • Banking stocks in China and Hong Kong lead indices lower
PUBLISHED : Thursday, 20 December, 2018, 7:13pm
UPDATED : Thursday, 20 December, 2018, 10:22pm

Hong Kong and China stocks fell on Thursday, in line with the declines seen across Asia, as investors were disappointed after the US Federal Reserve defied their expectations and raised interest rates and hinted at more next year.

On Wednesday, although the Fed indicated that it would bring down the number of interest rate increases from three to two in 2019, some investors were let down by the absence of a more accommodative stance.

“The market was expecting the Federal Reserve to reconsider its interest rate path after some leading market commentators in the US had pointed to the risk of policy errors if it did not halt the rate increases, given the increasing signs of slowing global trade,” said Alex Wong, director at Ample Finance Group.

Over the weekend, former member of the Federal Reserve board and leading hedge fund manager Stanley Druckenmiller wrote in The Wall Street Journal’s op-ed section that the Fed should halt its interest rate increases, as there were enough indicators, such as slowing global trade growth to suggest the economy might need some monetary accommodation.

Fed chairman Jerome Powell partly echoed that view, as he said on Wednesday that the US economy is showing signs of “softening”, adding that most officials have “modestly” lowered their growth forecasts for next year.

Hong Kong’s de facto central bank raises base interest rate by 25 points for fourth time this year in lockstep with US monetary policy

The Hang Seng Index lost 0.9 per cent, or 241.86 points, to 25,623.53, with banking and financial stocks leading the declines.

HSBC fell 0.9 per cent to HK$63.55, China Construction Bank lost 0.8 per cent to HK$6.34 and Ping An Insurance dropped 2.2 per cent to HK$71.3.

In China, the Shanghai Composite Index fell 0.5 per cent, or 13.3 points, to 2,536.27. The CSI 300 index, which tracks the top 300 blue chips listed on both Shanghai and Shenzhen, lost 0.8 per cent, or 23.71 points, to 3,067.42.

Shenzhen Component Index was the only gainer in Asia on Thursday, closing practically fat at 7,426.44.

In China, Industrial and Commercial Bank of China led the decline in Shanghai, losing 1.9 per cent to 5.23 yuan. The loss came despite an earlier statement by the People’s Bank of China that it would use the Targeted Medium-term Lending Facility, to increase liquidity support for small and private businesses.

“Globally, the banking sector has not been in investors’ favour. Some investors are concerned about the risk of a yield curve inversion would begin to squeeze margins for banks,” said Wong.