Hong Kong stocks surrender gains as China lockdowns squeeze corporate earnings, rate hike hurts developers

Alibaba eked out a 0.2 per cent gain, surrendering nearly all of its earlier 4.7 per cent spurt in early trading
JD.com advanced after proposing a US$2 billion special dividend to holders of ordinary shares and American depositary units

Hong Kong stock market

Ann Caoin Shanghai

Published: 10:35am, 5 May 2022

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Hong Kong stocks fell, erasing an earlier advance, on concerns Covid-19 lockdowns will undermine corporate earnings at China’s biggest companies. Higher interest rates also stoked concerns about home financing and sales outlook.

The Hang Seng Index retreated 0.4 per cent to 20,793.40 at the close of Thursday trading, reversing an earlier rise of almost 1 per cent. The Tech Index was little changed, losing almost all of its 2 per cent gain. The Shanghai Composite Index added 0.7 per cent as the mainland financial markets reopened after a three-day holiday.

Tencent slipped 0.5 per cent to HK$366.40 while WuXi Biologics slumped 5.4 per cent to HK$54.20. Sunny Optical dropped 3.3 per cent to HK$109.20 and HSBC lost 0.6 per cent to HK$50.45. Alibaba Group ended with a 0.2 per cent gain at HK$96.70, after surging as much as 4.7 per cent.

Elsewhere, JD.com rose 0.8 per cent to HK$241.60 after the e-commerce and logistics group proposed a US$2 billion special dividend payout to shareholders. That translates into 63 US cents for each ordinary share and US$1.26 for each of its depositary shares.

Shanghai will remain under strict antivirus measures after new data released on Thursday showed 34 new cases in non-quarantine areas in the past 24 hours, government officials said on Thursday. In Beijing, public transport in Chaoyang, home to the central business district, have all been suspended as the capital reported 50 new community cases.

“Given the Covid-related downward pressure on the economy, we expect more policy easing to support growth,” UBS Securities said in a report. Even so, China is not likely to do “whatever it takes” to achieve its ambitious growth target this year, it added.

China’s corporate profits squeezed as lockdowns, raw materials erode margins

Earnings of China-listed companies rose at an annual pace of 4.1 per cent last quarter due to the impact of Ukraine war and virus curbs, according to data published by brokerage CICC. Citic Securities forecast a 6 to 10 per cent growth in 2022, the slowest in three years.

03:02

Shanghai residents under Covid lockdown protest against lack of food

While China has pledged to support the economy, policymakers have been extra patient in dispensing stimulus. A private-sector report today showed China’s services industry fell more than expected in April to the lowest level since March 2020, the Caixin/Markit PMI Services Index showed today.

The slide added to government reports this week showing Chinese manufacturing contracted in April to the lowest level since February 2020, while Hong Kong’s economy shrank more than expected by 4 per cent in the first quarter amid curbs to contain the fifth wave of pandemic.

“The A shares have recently rebounded, likely to last until mid-May,” Cinda Securities said in a report. “After that, due to the impact of the Fed’s rate hike and a decline in manufacturing profits, there is a possibility of a second dip.”

Hong Kong’s rate rises by half-point in biggest one-time jump since 2000

Property developers fell on concerns higher interest rates will dent new home sales. New World Development fell 1 per cent to HK$30 and Henderson Land lost 0.5 per cent to HK$31.95. An index tracking the industry slipped 0.7 per cent.

The Hong Kong Monetary Authority on Thursday raised its base rate to 1.25 per cent in the biggest hike since 2000, in lockstep with a half-point increase in federal funds rate by the Federal Reserve as the US tightened its policy to overcome the fastest inflation in four decades.

Major Asian markets were mixed. South Korean and Japanese stocks fell 0.1 per cent, while Australian equities rose 0.9 per cent.