Hong Kong stocks slip after surprise contraction in China’s factory activity

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Weak demand and persistent deflation will continue weighing on Chinese share prices, with limited upside in the near term, according to BCA Research

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Pedestrians walk past Exchange Sqaure in Central. Photo: Eugene Lee

Jiaxing Li

Published: 10:42am, 1 Aug 2024Updated: 4:53pm, 1 Aug 2024

Hong Kong stocks weakened after an unexpected contraction in China’s manufacturing activity and weak home sales in July reignited growth concerns. The US Federal Reserve’s dovish outlook after its overnight decision to leave interest rates unchanged failed to boost market sentiment.

The Hang Seng Index declined 0.2 per cent to 17,304.96 on Thursday giving back some of the 2 per cent gain posted on Wednesday. The Tech Index dropped 1.2 per cent, while the Shanghai Composite Index lost 0.2 per cent.

Among markets heavyweights, e-commerce platform operator JD.com retreated 3.9 per cent to HK$99.95, game developer NetEase dropped 1.9 per cent to HK$143.40 and lender HSBC slid 2.4 per cent to HK$68.25. Longfor tumbled 5.4 per cent to HK$9.61 and China Resources Land lost 3.4 per cent to HK$22.65, leading declines in mainland developers.

The Caixin/S&P Global manufacturing PMI contracted to 49.8 in July from 51.8 the previous month, missing analysts’ forecasts of 51.5. That reinforced concerns about China’s economic slowdown, with the official PMI manufacturing index released on Wednesday dropping to 49.4 from 49.5 in June. The 50-point mark separates growth from contraction.

Meanwhile, property sales also remained on a weakening trajectory in July. The top 100 property developers’ contracted sales registered a 20.5 per cent decline last month, following a 21.8 per cent decrease in June, according to the China Real Estate Information Corporation (CRIC).

“Weak demand and persistent deflation will continue weighing on Chinese share prices,” Jing Sima, China strategist at BCA Research, said in a webinar on Wednesday. “At least for the next six months, we’re not seeing much upside.”