Hang Seng Index marks best start to year since 2011 as banks and insurers rally while Xiaomi plunges

Hong Kong markets completed a third week of gains, lifting the benchmark index to highest level before the Wuhan lockdown a year ago
Xiaomi crashed by a record 10 per cent on US sanctions, while insurer AIA Group and Chinese bank stocks pushed the market to its best opening two weeks of year since 2011

Stocks

Iris Ouyang

Published: 11:26am, 15 Jan 2021

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Xiaomi Corp crashed by a record 10 per cent on Friday trading as investors dumped the Chinese smartphone maker after a new round of US sanctions. Major Chinese bank stocks advanced while insurer AIA Group surged to an all-time high, keeping the benchmark index near a one-year high.

The Hang Seng Index rose 0.3 per cent at 28,573.86 for a 2.5 per cent gain from a week ago as the market capped its best start to a year in a decade. The Shanghai Composite Index erased a 0.5 per cent loss to end little changed at 3,566.38.

Xiaomi earlier plunged to an intraday low of HK$28.25 before closing at HK$29.30 or 10.3 per cent below Thursday’s closing. The slump wiped out HK$66.7 billion (US$8.6 billion) of market value from the phone company. The stock carries a 3.5 per cent weight, making it the ninth largest constituent in the main index, and has the fifth-largest 4.5 per cent weight in the local Composite Index.

Xiaomi surged 208 per cent in 2020 as the company’s phone shipment catapulted it into the top three globally after Apple and Samsung. US-based investors including BlackRock and Vanguard owned 15 per cent of its shares as of January 10, making them the third-largest group of investors by geography, according to Bloomberg data.

Still, the Hang Seng Index has now erased all of the losses since the Wuhan lockdown on January 23 last year. The index’s 4.93 per cent gain since December 31 is the most since a 5.4 per cent advance in the opening two weeks of 2011, according to Bloomberg data.

The US Defence Department added nine more firms on Thursday, Including Xiaomi and state-owned plane maker Commercial Aircraft Corp or Comac, to its list of companies that it says have ties with the Chinese military, rounding out the total to 44. The Commerce Department separately added oil explorer China National Offshore Oil Corp to an economic blacklist.

Bank stocks jumped as investors switched to safer bets. Postal Savings Bank of China surged by 8.4 per cent in Shanghai and 10.2 per cent in Hong Kong while Industrial and Commercial Bank of China and rival China Construction Bank climbed by 1.6 and 2.1 per cent respectively. AIA Group, the biggest Hang Seng constituent, jumped 3.7 per cent to HK$104.40.

02:06

What's behind Xiaomi's meteoric rise?

Li Lu, influential investor and founder of Himalaya Capital, bought TKTK billion shares, or a 5.06 per cent stake, in Postal Savings Bank, according to local media reports. China Merchants Bank, Industrial Bank and Ping An Bank surged to record highs on mainland bourses.

“I’m not that worried about the sanctioned companies, either supported or not supported [by mainland funds], as long as fundamentally they are good companies, all people are going to own them,” said Bhaskar Laxminarayan, ‎chief investment officer for Asia-Pacific at Bank Julius Baer. “Fundamentals play out in this kind of environment,’’ he said on a teleconference on Friday, adding that the impact is even shorter given the rapid flow of information and funds.

The latest sanctions overshadowed optimism surrounding President-elect Joe Biden’s announcement on a US$1.9 trillion stimulus bill, including funds for Covid-19 control, direct cheques to citizens and reliefs for communities and businesses.

02:32

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Markets were subdued elsewhere in Asia. South Korea’s Kospi fell 2 per cent and the Nikkei 225 lost 0.6 per cent. S&P ASX200 in Australia was almost flat.

On the mainland, a number of blue chips plunged amid concerns on valuations as state media criticised funds flocking to certain popular stocks and sectors. Wuxi AppTec lost 1.6 per cent in Shanghai. Foshan Haitian Flavouring & Food shed 4.8 per cent.

Liquor stocks also slumped. Kweichow Moutai, the world’s most valuable liquor stock, dropped 2.4 per cent to 2,082 yuan, after its record rise earlier this week lifted its market value above the 2019 gross domestic product of Shenzhen, China’s third richest city.

New listings in Hong Kong were mixed. Modern Chinese Medicine Group added 6.8 per cent to HK$1.26 while Cheshi Holdings surged 22 per cent to HK$1.50 and Strawbear Entertainment Group soared 83.7 per cent to HK$10.80. Roiserv Lifestyle Services dipped 8.2 per cent to HK$12.36.

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