Hong Kong stocks halt Year of Dragon rally on China policy rate decision, Hang Seng Index letdown

Stocks halted a three-day Year of the Dragon winning run after China on Sunday kept its policy rate unchanged for a sixth month

Index compiler last week kept its benchmark Hang Seng membership unchanged at 82; index hopefuls Kuaishou, Xpeng, Swire Properties tumbled

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An investor is reflected in a screen showing stock information at a brokerage in Shenyang. Chinese stocks reopened higher after a week-long Lunar New Year holiday. Photo: Reuters

Published: 10:59am, 19 Feb 2024Updated: 4:44pm, 19 Feb 2024

Hong Kong stocks declined after China’s central bank refrained from cutting its key rates in a move to protect the local currency, sending a conflicting signal about its readiness to revive the economy. Stocks on mainland bourses reopened higher to catch up with robust gains elsewhere last week.

The Hang Seng Index slipped 1.1 per cent to 16,155.61 at the closing of Monday trading, ending a three-day 3.8 per cent rally at the start of the Year of the Dragon last week. The Tech Index lost 2.7 per cent, and the Shanghai Composite Index jumped 1.6 per cent after a week-long Lunar New Year holiday.

Tencent declined 2.4 per cent to HK$284.80, Alibaba Group weakened 2.1 per cent to HK$71.50 while e-commerce peer JD.com retreated 4.1 per cent to HK$91.85. Sportswear maker Li Ning slumped 8.6 per cent to HK$19.42 and developer Longfor lost 5.1 per cent to HK$8.90.

The People’s Bank of China left the rate on the medium-term lending facility at 2.5 per cent on Sunday, unchanged for a sixth straight month in a decision seen as protecting the currency downside. The yuan has weakened to 7.210 per US dollar in offshore trading from 7.187 three weeks ago.

“Authorities believe poor sentiment, rather than weak economic fundamentals, is behind the drop in share prices,” analysts at BCA Research said in a report. “Thus, they will resort to regulatory measures rather than provide large stimulus to the economy. The weak economic backdrop implies that any intervention-driven rally in Chinese stocks is likely to be short-lived.”

The Hang Seng Index rallied last week in an auspicious start to the Year of the Dragon to add to a 1.4 per cent gain in the preceding week, the market’s best back-to-back weekly gain since June. China made a surprise cut in the reserve requirement ratio for banks, effective earlier this month, and intervened in the stock market to boost sentiment.