Hong Kong stocks retreat on profit taking as investors turn cautious over possible rate rise

Attention turns to Friday speech by US Fed Chair Janet Yellen that could provide strongest indication yet of interest rate moves

PUBLISHED : Friday, 03 March, 2017, 9:24am
UPDATED : Friday, 03 March, 2017, 10:04pm

Hong Kong stocks retreated to a three-week low on profit taking after investors turned cautious in the wake of increasing expectations for a US rate increase.

The Hang Seng Index dropped 0.7 per cent or 175.4 points to 23,552.7, its lowest level since February 10, while the Hang Seng China Enterprises Index declined for the seventh consecutive trading day, down 1 per cent to 10,144.5 on Friday. For the week, the city’s benchmark lost 1.7 per cent after a decline of 0.3 per cent the previous week.

Hong Kong stocks, joining the retreat seen in other major Asian markets, slumped for the second day ahead of US Federal Reserve chairwoman Janet Yellen’s speech later on Friday, which could provide the strongest indication yet about likely interest rate moves in coming weeks.

Several Fed officials have this week stoked expectations of a rate rise in March amid the strengthening US economy. The Fed’s next policy-setting meeting is set for March 14-15.

“The Hong Kong market is testing the bottom as Federal Reserve officials turn more hawkish and the chance for a rate rise in March has surpassed 80 per cent,” said Stanley Chan, director of research at Emperor Securities.

Higher US rates will strengthen the greenback, with the DXY dollar spot index climbing 1 per cent this week, but dropping slightly by 0.1 per cent to 102.1 on Friday.

“Emerging markets including Hong Kong are likely to see capital outflows when the dollar becomes stronger,” said Castor Pang Wai-sen, head of research at Core Pacific Yamaichi. “The Hong Kong market will see moderate losses in coming days.”

Local property developers, sensitive to a rate rise, led losses in the city. New World Development fell 2.3 per cent to HK$9.9 while Hang Lung Properties dropped 1.8 per cent to HK$19.4.

Mainland Chinese banks also underperformed on Friday. Bank of China declined 1.8 per cent to HK$3.8 and China Construction Bank dropped 1.8 per cent to HK$6.2. ICBC, the world largest bank by assets, was down 1.6 per cent to HK$4.9.

Emerging markets including Hong Kong are likely to see capital outflows when the dollar becomes stronger
Castor Pang Wai-sen, Core Pacific Yamaichi

The Hang Seng and H-share Indices will be rebalanced after Friday. Geely Automobile will officially become one of the 50 constituents in the Hang Seng Index starting Monday, replacing Li & Fung. Postal Savings Bank of China is the new constituent stock in the H-share index, replacing Tsingtao Brewery.

All four companiesshrugged off the weak investment sentiment to outperform the market on Friday.

Hong Kong trading firm Li &Fung was the biggest gainer among the HSI 50 on its last day in the index, up 3.2 per cent to HK$3.5 after consecutive declines in the previous six trading days.

Geely was up 0.2 per cent to HK$10.7 while Postal Savings Bank of China added 0.2 per cent to HK$4.8, and Tsingtao Brewery rallied 4.6 per cent to HK$36.5.

On the mainland, the Shanghai market closed Friday lower, while Shenzhen stocks edged higher. The Shanghai Composite Index ended 0.4 per cent down to 3,218 while the CSI 300 fell 0.2 per cent to 3,427.86. The Shenzhen Component Index inched up 0.3 per cent to 10,397.1 and the Nasdaq-like ChiNext rose 0.4 per cent to 1,928.3.

Leshi Internet Information & Technology tumbled 5.5 per cent to 31.9 yuan following a report by The Economic Times in India saying that parent company LeEco has fired 85 per cent of its staff in India, including two top executives, for a possible exit from the market. The report was later denied by the company.

SF Express slumped 7.8 per cent to 62.6 yuan, extending its losing streak for two days in a row, after it soared in the first three days of trading following its IPO on Monday

The Markit/Caixin services purchasing managers’ index (PMI) for February came in at 52.6, down from 53.1 in January, reaching the lowest level in four months and reflecting the slow down in expansion, according to China’s official data.

Meanwhile, the Nikkei Hong Kong Purchasing Managers Index for China fell to 49.6, indicating falling confidence in business operations, as it was below the watermark of 50.