Hong Kong, China stocks slump on bubble, taper risks as bond market tumult triggers broad sell-off

A jump in US government bond yields sends equities lower with traders jittery on valuation, inflation, policy risks
‘Taper tantrum’ risks have pushed local market volatility to the highest level since July while mainland funds withdraw

Hang Seng Index

Zhang Shidongin Shanghai

Published: 10:49am, 4 Mar 2021

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Hong Kong and mainland Chinese stocks slumped as a bond market rout infected equity markets around the region with traders grappling with valuation, inflation and monetary policy tightening risks.

The Hang Seng Index slid 2.2 per cent to 29,236.79 at the close of Thursday trading while the Shanghai Composite Index dropped 2.1 per cent. Local sentiment remains skittish this week, swayed by surging US government bond yields amid worries central bankers will dial back ultra-easy policies that helped fuel global equities to record highs.

Mainland traders sold HK$4.3 billion (US$558 million) of the city’s stocks through the exchange link on Thursday for a second time of net selling this week, according to Bloomberg data.

Technology stocks topped the list of decliners in Hong Kong, with the Hang Seng Tech Index plunging 5.8 per cent. Kweichow Moutai, one of the most concentrated bets held by onshore money managers, sank the most in a week in Shanghai. The ChiNext gauge of small-caps in Shenzhen, which is four times as expensive as the mainland’s benchmark, toppled 4.9 per cent.

“It’s better to seek the safe hedge on the macro backdrop that the recovery is uneven, real inflation looms large and liquidity will eventually be tightened,” said Cheng Shi, chief economist at ICBC International.

Local benchmark indices had tumbled on Tuesday after comments about asset bubbles by a top Chinese financial regulator, before recouping all the losses a day later, leaving investors facing the wildest price swings since July. Stocks are sensitive to any shakeout in bond markets, as traders are increasingly fretting about valuations that could shrink once policies are tightened.

Markets in Asia-Pacific fell across the board on Thursday, with stock gauges from Australia to Japan and South Korea losing by 0.8 per cent to 2 per cent. The Nasdaq 100 retreated to a two-month low in overnight US trading after yields on Treasuries jumped. Inflation expectations over the next five years rose to the highest level since 2008.

In the latest sign that gains in stocks have powered ahead of fundamentals, US services providers slowed to a nine-month low in February and the number of employees at American businesses rose by less than expected.

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“The market focus remains worryingly on higher interest rates, a by-product of market-based inflation expectations, as well as the throughput effect into the heavily owned tech sector, where alarm bells are sounding amid lofty valuations,” said Stephen Innes, a strategist at Axicorp.

Some 35 out of the 52 members on the Hang Seng Index fell on Thursday, as WuXi Biologics, Meituan and Sunny Optical Technology paced the worst performers with more than 6 per cent losses.

Tencent Holdings, the Chinese social-media giant, dropped 4.6 per cent to HK$690 and smartphone maker Xiaomi lost 4 per cent to HK$25.40.

On the mainland, Kweichow Moutai, the world’s most valuable liquor distiller, shed 5 per cent to 2,033 yuan. Contemporary Amperex Technology, the maker of lithium batteries and also the biggest weighing on the ChiNext index, tumbled 6.9 per cent to 325.57 yuan.