Hong Kong stocks slip toward 14-month low as China deflation creates ‘value trap’ while Li Ning sinks 14% on asset purchase plan

Consumer prices in China fell 0.5 per cent in November, the steepest drop in three years

Deflation puts corporate earnings and margins at risk, making Chinese stocks a value trap rather than a buying opportunity, BCA Research says

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A screen showing the Hang Seng stock index is seen outside Exchange Square, in Hong Kong on August 18, 2023. Photo: Reuters

Published: 10:52am, 11 Dec 2023Updated: 4:40pm, 11 Dec 2023

Hong Kong stocks extended a slump to near a 14-month low after consumer prices in China fell by the most in three years, heightening concerns deflation will erode corporate earnings and margins. The Federal Reserve is seen holding its key rate this week at its final meeting of the year.

The Hang Seng Index dropped 0.8 per cent to 16,201.49 at the closing of Monday trading, the lowest level since early November last year. The Tech Index lost 1.1 per cent while the Shanghai Composite Index gained 0.7 per cent.

Sportswear maker Li Ning tumbled 14 per cent to HK$18.36 after the company bought a 25-storey mixed office and retail building in North Point, Hong Kong from Henderson Land for HK$2.2 billion (US$282 million) to house its headquarters in the city.

Meituan lost 3.5 per cent to HK$83.60, Alibaba Group declined 2.1 per cent to HK$69 and e-commerce peer JD.com tumbled 6.3 per cent to HK$98.25. Electric-vehicle maker BYD lost 1 per cent to HK$208.60 while Macau casino operator Galaxy Entertainment slipped 1.8 per cent to HK$41.15.

Consumer prices fell 0.5 per cent in November from a year earlier, after a 0.2 per cent drop in October, the statistics bureau said in Beijing on Saturday. That is the steepest since a 0.5 per cent drop in November 2020. Deflation will hurt profit margins and corporate earnings, potentially leading to lay-offs, according to BCA Research.