Contrasting fortunes: China’s stock market recoups Covid-19 losses, while Hong Kong endures slump
- The correlation between the Hang Seng Index and the CSI 300 is the lowest since March when China declared that the worst of Covid-19 out break was over
- Full-year profit of Hang Seng Index members likely to fall 24 per cent, while those listed on the CSI 300 will probably rise 3.2 per cent, Bloomberg data shows
Hong Kong’s stock market has diverged the most relative to its mainland’s peer since the peak of the coronavirus outbreak in the mainland in March, as the prospect of bleak earnings outlook weighs on equities listed in the city.
The 120-day correlation between the Hang Seng Index and the CSI 300 Index of the top 300 stocks traded on the Shanghai and Shenzhen stock exchanges fell to 0.62 on Wednesday, the lowest since March when China declared that the worst of the Covid-19 epidemic was over, according to Bloomberg data. A reading of one means that the two move in lockstep and zero indicates no relationship.
The 50-member Hang Seng Index has fallen 12 per cent this year, while the CSI 300 has not only recouped all the losses spurred by the Covid-19 sell-off and is closing in on a high set in January 2018.
The bleak corporate earnings outlook probably explains the contrasting fortunes of the two markets. Full-year profits for the Hang Seng Index constituents may decline 24 per cent from a year earlier, while net incomes for the companies on the CSI 300 will probably rise 3.2 per cent, Bloomberg data showed.
“Hong Kong’s market pays great heed to profitability,” said HSBC Jintrust Fund Management in a report this week. “Earnings growth is prerequisite for a bull market. There’s no bull run before the occurrence of an inflection point for earnings.”