Hong Kong Stock Exchange

Hong Kong markets slip to 4-month lows after first US interest rate rise in a year

Federal Reserve announces expected 25 basis points rate rise, putting all sectors in the red. Energy, bank and real estate among the hardest hit

PUBLISHED : Thursday, 15 December, 2016, 8:58am
UPDATED : Thursday, 15 December, 2016, 4:58pm

Hong Kong stocks slipped to four-month lows on Thursday, following the US Federal Reserve’s widely-expected decision to raise interest rates for the first time in a year, with energy, bank and real estate among the worst hit sectors.

The Fed’s Open Market Committee (FOMC) moved to raise interest rates by an expected 25 basis points, marking the second rate change in a decade after a near-zero global interest rate environment since the 2008 financial crisis.

But investors were surprised by the Fed’s signalling of three additional rate rises in 2017, up from median September estimates of only two.

The Hong Kong Monetary Authority followed suit, raising the base rate by 25 basis points to 1 per cent – the first time in a year it has brought up rates.

All sectors were in the red by the end of trading, with the Hang Seng Index at its lowest point since the start of August, down 1.77 per cent or 397.22 points to 22,059.40. The Hang Seng China Enterprises Index slipped 2.34 per cent or 226.99 points to 9,479.16, its lowest level in three weeks.

“Hong Kong is going to have a really tough time,” Capital Link Investment Holdings chairman and chief executive Brett McGonegal told the Post, noting that raising interest rates was not the right recipe to cure the city’s hot property market, collapse of capital and the pull back on luxury goods.

“It’s not the right thing for Hong Kong at this point.”

Hong Kong markets were likely to stay soft for the next four weeks until US President-elect Donald Trump’s inauguration in January, he said.

Selling pressure was likely to accelerate in the near-term, according to Castor Pang Wai-san, head of research at Core Pacific-Yamaichi International (HK).

“The markets don’t seem to have bottomed yet,” Pang told the Post. “Liquidity may have the chance to deteriorate further.”

Following the FOMC meeting, the US dollar rose to its highest level in almost 14 years, while the yuan depreciated to eight and a half year lows.

“Both the US dollar exchange rate and US treasury yield rose obviously, which will be [unfavourable] to Hong Kong’s stock market,” Ben Kwong Man-bun, executive director and head of research at KGI Securities, said in a morning note.

The markets don’t seem to have bottomed yet. Liquidity may deteriorate further
Castor Pang Wai-san, Core Pacific-Yamaichi International

Rate-sensitive stocks like real estate, consumer cyclicals and energy stocks were the hardest hit, while industrial sector slipped the least, McGonegal said.

“That’s a rotation in a flight to safety,” he said, noting traders were moving away from interest-sensitive stocks and towards utilities.

Banks saw hefty losses, with China Construction Bank down 2.97 per cent, HSBC down 0.85 per cent and ICBC down 2.97 per cent.

HSBC announced on Thursday afternoon it would maintain its prime rate at 5 per cent, making it the first major bank in Hong Kong to announce its decision.

Property stocks slipped 1.09 per cent, with major developer Sun Hung Kai Properties down 2.35 per cent and Wharf Holdings falling 2.57 per cent.

Companies with heavy investments in China, such as insurers, were also weaker. The banking sector dropped 1.23 per cent while insurance stocks fell 1.84 per cent.

Also in the red were energy and mining stocks, due to falling oil prices on US dollar strength.

Oil and gas company PetroChina fell 1.83 per cent while CNOOC slipped 3.47 per cent.

Macau gaming stocks fell after new concerns arose over a potential outbreak of H7N9 bird flu after Macau reported its first human case of the flu strain on Wednesday.

Sands China was down 2.79 per cent while Galaxy Entertainment dropped 3.47 per cent.

Selfie-app maker Meitu began trading in Hong Kong on Thursday, with high turnover but its share price closed at HK$8.5, after starting the day at HK$8.78.

Mainland markets were mixed on Thursday after a weak start. The Shanghai Composite Index dropped 0.73 per cent to close at 3,117.68. The CSI 300 Index — which tracks the large caps listed in Shanghai and Shenzhen — also fell 1.14 per cent.to 3,340.43.

The last time the Fed raised interest rates, in December 2015, Shanghai’s benchmark index lost 25 per cent of its value six weeks after the rate decision.

But Shenzhen indices headed higher. The Shenzhen Composite Index rose 0.67 per cent to 1,972. The Shenzhen Component Index gained 0.23 per cent to 10,256.11. The Nasdaq-style ChiNext moved up 0.65 per cent to 1,975.85.

Insurance companies remained under pressure thanks to increased scrutiny by the China Securities Regulatory Commission (CSRC) over leveraged buyout deals by insurers.

In the US, all three major indices saw choppy trading after the interest rate decision, following weeks of post-election rallies, with the Dow Jones Industrial Average seeing its worst drop since October.

In Asian trading on Thursday morning, Tokyo’s Nikkei 225 lost 0.10 per cent, South Korea’s Kospi was down 0.01 per cent while Sydney’s All Ordinaries dropped 0.79 per cent.