China, Hong Kong stock rally fizzles out as worries win out

  • ‘Investors are haunted by many concerns,’ says Tony Ho of Wealthlink Securities
  • Alvin Cheung of Prudential Brokerage warns of pullback in Hong Kong stocks in January
PUBLISHED : Thursday, 27 December, 2018, 11:51am
UPDATED : Thursday, 27 December, 2018, 6:24pm

An early rally by mainland China and Hong Kong shares fizzled out on Thursday, as a myriad of concerns darkened traders’ outlook.

The Shanghai Composite Index and Hong Kong’s Hang Seng Index both closed 0.6 per cent down.

In contrast, the Nikkei 225 in Japan ended up by 3.88 per cent, trimming only a bit of its earlier gains.

“Investors are haunted by many concerns,” said Tony Ho, director for Wealthlink Securities. “China

didn’t unveil enough policy details to stimulate the economy at last week’s highly anticipated Central Economic Work Conference. Other concerns include the US government shutdown and Brexit dispute. Even the sudden surge on Wall Street following a plunge is unsettling.”

Ho said the market is getting more jittery and suggests investors stay on the sidelines.

Alvin Cheung, associate director at Prudential Brokerage, warned of a pullback in stocks in January.

“Traditionally, the stock market will benefit from the ‘window dressing’ effect near year-end, as fund managers adopt a strategy to improve the appearance of their fund’s performance before presenting it to clients or shareholders,” Cheung said. “The effect will fade out next month, which may cause Hong Kong stocks to retreat.”

In Hong Kong, textile manufacturer Shenzhou International Group sank 8.3 per cent to HK$85.80, the biggest percentage loser among blue-chip shares. CSPC Pharmaceutical Group tumbled 3.6 per cent to HK$10.72 and Chinese carmaker Geely Auto also lost 3.2 per cent to HK$13.36.

In mainland China, Sinopec sank 6.8 per cent to 5.25 yuan, after various news reports said the company had suspended two senior officials at its trading arm Unipec, after the company suffered losses. Sinopec’s Hong Kong-listed shares also fell 4.7 per cent to HK$5.70.

Morning trading started strong in Asia, after Kevin Hassett, chairman of the White House Council of Economic Advisers, said on Wednesday Federal Reserve chairman Jerome Powell’s job was “100 per cent” safe, according to media reports. Earlier reports had said President Donald Trump wanted to fire Powell, blaming his interest rate increases for a recent downturn on Wall Street. Concern had grown that tumult at the world’s most powerful monetary authority would worsen the impact of the US-China trade war.

Asian investors also started Thursday with positive news on the trade war front. According to Bloomberg, a US government delegation will travel to Beijing during the week of January 7 to talk to Chinese officials about trade, hinting that tensions may be cooling. This would be the first in-person talks between the two countries since the 90-day truce was agreed in Argentina in early December.

The Hang Seng Index rose by as much as 1 per cent, while Shanghai rose by as much as 1.3 per cent.

Dow rises a record 1,050 points, as US stocks stage a massive Boxing Day rebound after pre-holiday punishment

“I remain cautious on the future of the Hong Kong market,” said Louis Wong Wai-kit, director of Phillip Capital Management. “I expect there to be resistance around 26,000 because of uncertainties around trade, oil prices, the Federal Reserve and the US government shutdown, which will remain to pressure the market,” he added. The Hang Seng closed at 25,478.

Gordon Tsui, managing director of Hantec Pacific, said market upturns are short-term and ongoing uncertainties surrounding the relationship between the US and China will continue to weigh on sentiment to end the year on a negative note. He said he expected fluctuations within 500 or 1,000 points towards the end of the year.

Meanwhile, new data out of China on Thursday signalled continuing headwinds for the world’s second-largest economy.

Earnings growth at China’s industrial firms fell for the first time in three years in November, according to data released by the National Bureau of Statistics, pointing to slowing economic momentum at home and abroad.

Industrial profits fell 1.8 per cent from a year earlier in November to 594.8 billion yuan (US$86.33 billion), following a 3.6 per cent expansion in October. The data marks the first decline since December 2015.

For the first 11 months of this year, industrial profit growth rose 11.8 per cent to 6.1 trillion yuan from the same period a year earlier, slowing down the 13.6 per cent increase seen in the January to October period.

Also out of China, the Bank of China plans to sell 40 billion yuan of perpetual bonds, Bloomberg reported, which is being viewed as helpful to private companies in need of lending. This could be the first ever issuance of such debt by a lender in China. While shareholders approved the proposal at the end of June, according to Bloomberg, regulators had yet to do so.

Shares of Bank of China closed flat in Hong Kong and Shanghai, at HK$3.33 and 3.63 yuan, respectively.