Hong Kong stocks slide after Morgan Stanley downgrades China to equal-weight from overweight
- Morgan Stanley downgrades its China recommendation to equal-weight from overweight citing its local government debt, property situation and geopolitics
- The Caixin/S&P Global services purchasing managers’ index for July was higher than the June reading and was in expansionary territory for the seventh straight month
The Hang Seng Index slipped 0.5 per cent to 19,420.87 at the closing of Thursday trading, the lowest level since July 26. The Tech Index climbed 0.4 per cent, while the Shanghai Composite Index gained 0.6 per cent.
Alibaba Group dropped 2.1 per cent to HK$93.15, rival JD.com slid 1.6 per cent to HK$150.30 and travel agency Trip.com slid 1.6 per cent to HK$305.40. The country’s biggest developer Country Garden dropped 0.7 per cent to HK$1.45, while Country Garden Service Holdings slumped 2.5 per cent to HK$9.66.
“Latest politburo meeting pivot offers an opportunity to take profit and assess policy execution,” Morgan Stanley strategists Laura Wang and Fran Chen wrote in a note to clients on Wednesday. “The July Politburo meeting signalled policy easing, but key issues including local government financing vehicle debt, the property and labour markets and the geopolitical situation need to improve significantly, in our view, for sustainable inflows and further re-rating.”
The bank downgraded China to equal weight from overweight citing still-negative earnings revisions and weak return on equity and profit margins compared with historical trends.
The city’s benchmark index has had a weak start in August after logging a two-month winning run, as the rally fueled by Beijing’s pro-growth rhetoric has lost steam as investors’ stimulus expectations have been disappointed. The Hang Seng Index is on track to post a 2 per cent loss this week, the worst in a month, according to Bloomberg data.
Elsewhere, the Caixin/S&P Global services purchasing managers’ index (PMI) jumped to 54.1 in last month from 53.9 in June, marking a quicker expansion across China’s services activity. It remained in expansionary territory for the seventh straight month.
“Both service supply and demand continued to expand in July. Market conditions in the sector kept improving, business activities further increased, and demand expanded accordingly,” said Wang Zhe, senior economist at index provider Caixin Insight Group.
Two stocks debuted on Thursday. Kingchem Liaoning Life Science jumped 28 per cent over its issue price to 72.52 yuan, while Changhua Chemical Technology surged 35 per cent to 34.82 yuan in Shenzhen.
Major Asian markets retreated ahead of a slew of economic data. The Nikkei 225 in Japan declined 1.7 per cent, the S&P/ASX 200 in Australia dropped 0.6 per cent and the Kospi in South Korea lost 0.4 per cent.
