China, Hong Kong stocks arrest US$1.4 trillion slump but market pessimism stays near the depth of pandemic scare

Key stock benchmarks in mainland China and Hong Kong advanced after an overnight rally in US technology stocks as risk appetite recovered
A sell-off over the past four days has pushed technical ‘oversold’ readings close to the levels seen during the depth of Covid-19 pandemic a year ago

Hang Seng Index

Martin Choi

Published: 10:24am, 10 Mar 2021

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Mainland China and Hong Kong stocks posted muted gains in response to an overnight rally in US equities. Pessimism among local traders remained near the lowest during worst days of the Covid-19 pandemic about a year ago.

Traders abandoned caution in early trading to embrace risks following a 3.7 per cent surge in the Nasdaq Composite Index, the most since November 4. That overnight rally also powered a 19.6 per cent jump in Tesla Inc and lifted Bitcoin back to near its all-time high in February. Chinese stocks slumped in the past four days, wiping US$1.4 trillion of value from bourses in Shanghai, Shenzhen and Hong Kong, according to Bloomberg data.

The CSI300 Index, which tracks some of the biggest stocks in Shanghai and Shenzhen, added 0.7 per cent at the close, after earlier rising as much as 1.7 per cent. The gauge plunged by almost 9 per cent in the preceding four days.

The Shanghai Composite fell less than 0.1 per cent to 3,357.74, while the tech-heavy ChiNext gained 1.6 per cent. The Hang Seng Index gained 0.5 per cent to 28,907.52, also paring a bigger advance of 1.7 per cent. The gauge had fallen 3.7 per cent from March 3 through yesterday.

“The market is still in a wait-and-see situation,” said Castor Pang Wai-sun, head of research at investment services firm Core Pacific-Yamaichi. The rebound in US stock and bond prices helped alleviate concerns about interest rate hikes in the short-term, he added.

Liquor distiller Kweichow Moutai rose 1.7 per cent to 1,970.01 yuan in Shanghai, after falling 1.2 per cent on Tuesday. China Tourism Group Duty Free rose 6.1 per cent to 299.62 yuan.

Technology bellwethers drove gains in Hong Kong, with the Hang Seng Tech Index rising 1.9 per cent. Sunny Optical surged 6.2 per cent to HK$189.30 while Meituan jumped 5 per cent to HK$317.

The muted rebound is not surprising. Kenny Wen, a wealth management strategist at Everbright Sun Hung Kai in Hong Kong, said some investors have chosen to sell into the rally on the back of valuation concerns.

Shares of HSBC fell 2.1 per cent to HK$47.75, after Moody’s placed the UK-based lender’s banking units in Hong Kong on review for downgrade. Cathay Pacific fell 0.6 per cent to HK$7.06 after reporting a record loss of HK$21.6 billion (US$2.8 billion) for 2020 at noon.

Pang at Core Pacific-Yamaichi expects the market rebound to “see some resistance” and the Hang Seng Index may trade between 28,200 and 29,200 levels in the near term.

Before today, mainland traders were most pessimistic about onshore stocks in almost a year while policymakers in Beijing debated plans for the economy. A top banking regulator last week cautioned about bubble risks in offshore financial markets and domestic real estate market.

The technical “oversold” gauge this week stood at about 32 to 34, approaching the level last seen during the depth of the Covid-19 pandemic in March last year, according to Bloomberg data. The so-called 14-day relative strength index reading for the Hang Seng Index was at the lowest level since September. A reading below 30 indicates oversold.

Major markets in Asia-Pacific were mixed. Japan’s Nikkei 225 was little changed, while South Korea’s Kospi fell 0.6 per cent. Australia’s S&P/ASX 200 fell 0.8 per cent. Futures on US equities weakened, suggesting the overnight rally may not sustain.

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