Hong Kong stocks weaken with AIA, banks, developers under pressure as rate hike seen weighing on shrinking economy

Name: Hong Kong and the US: how much do they rely on each other economically?
Uploaded: 2022-07-28T02:17:28.000Z
Duration: 6 min 21 s
Description: Hong Kong and the US: how much do they rely on each other economically?

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The Exchange Square Complex in Central, Hong Kong on July 13, Photo: Bloomberg

Cheryl Heng

Published: 10:17am, 28 Jul 2022Updated: 4:27pm, 28 Jul 2022

Hong Kong stocks slipped after policymakers raised the city’s key interest rate to a three-year high in lockstep with an expected Federal Reserve hike. Banks and property developers led losses on concerns the move will weigh on the economy.

The Hang Seng Index dropped 0.2 per cent to 20,622.68 at the close of Thursday trading for a second day of decline. The Tech Index gained 0.4 per cent, while the Shanghai Composite Index added 0.2 per cent.

Insurer AIA Group lost 0.9 per cent to HK$79.90 while China Merchants Bank slumped 2.1 per cent to HK$43.05. Developers Longfor Group and China Resources Land retreated by at least 1 per cent. Limiting losses, Xiaomi climbed 2.4 per cent to HK$13 and Galaxy Entertainment gained 3.8 per cent to HK$47.40.

The Hong Kong Monetary Authority lifted its base rate by 75 basis points to 2.75 per cent immediately on Thursday, tracking a similar hike in the US to douse inflation. The move was preceded by a surge in local interbank rates, which have risen by 10-fold since the start of the year.

“Higher interest rates will increase borrowing costs and pressure stock and property markets,” Robert Lee Wai-wang, chief executive of Grand Capital Holdings, said before the rate increase. “However, banks and brokers currently should also have sufficient liquidity to withstand any risks.”

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Hong Kong and the US: how much do they rely on each other economically?

The Hang Seng Index has weakened 5.8 per cent in July, set for the worst performance since November. Sentiment soured this month as China’s embattled troubled property sector was dealt another blow, with frustrated homebuyers refusing to repay mortgages.