Hong Kong Stock Exchange

Hong Kong stocks slip to fresh four-month low, dragged down by interest rate rise, currency fears

The Hang Seng Index was down 0.18 per cent to 22,020.75 at Friday’s close, a level not seen since the start of August

PUBLISHED : Friday, 16 December, 2016, 8:59am
UPDATED : Friday, 16 December, 2016, 9:27pm

Hong Kong stocks hit a fresh four-month low on Friday as caution continued over interest rate increases and the soaring US dollar, with analysts expecting markets to remain quiet for the rest of the year.

The Hang Seng Index was down 0.18 per cent or 38.65 points to 22,020.75 at Friday’s close, a level not seen since the start of August. The Hang Seng China Enterprises Index also slipped 0.09 per cent or 8.83 points to 9,470.33.

“There’s a lot of people waiting and watching,” Andrew Sullivan, sales trading managing director at Haitong International Securities, told the Post, noting that some investors had just kept their money out of the market.

“There’s no sign of people panicking or jumping out of windows.”

Markets remained weak after the US Federal Reserve increased interest rates by 25 basis points at its two-day December policy meeting, prompting the US dollar to hit 14-year highs against a basket of major currencies. The People’s Bank of China continued depreciating the yuan on Friday, setting the reference rate at a fresh all-time low of 6.9508.

Sullivan said the falling yuan and rising dollar, coupled with a lack of clarity over who will form the remainder of President-elect Donald Trump’s team, would keep traders on the sidelines for the rest of the year.

Turnover was muted, with only 8 per cent of the Hong Kong-Shenzhen Stock Connect’s northbound quota used up.

“The markets continue to trade against the backdrop of the [Fed] meeting,” Stephen Innes, senior trader at foreign exchange company Oanda, said in a morning note. “The US dollar remains king of the hill.”

Linus Yip, chief strategist at First Shanghai Securities, said investors were also looking ahead to the Fed’s next meeting at the end of January 2017 for more clues on US monetary policy decisions.

Regarding market movements, Yip said there was “no concrete picture” as companies with large capitalisation values stumbled. Technology heavyweights Tencent and China Mobile were down 0.05 per cent and 0.67 per cent respectively.

Investors are shifting their focus away from big cap stocks to medium and smaller companies, he said.

China Huishan Dairy suspended trading of its shares at 11:12am after slipping 2.14 per cent to a 15-month low following a report from short-seller Muddy Waters Research saying Huishan is “worth close to zero,” and accusing it of reporting fraudulent profits and overstating its asset values.

Dairy companies Mengniu Dairy and Yashili International also fell 2.60 per cent and 1.33 per cent respectively after pessimistic outlook reports from Credit Suisse.

The banking and insurance sectors ended mostly up, although both Bank of China Hong Kong and HSBC continued to see slips, falling 1.60 per cent and 0.08 per cent respectively.

China Life Insurance dropped 0.97 per cent while Ping An Insurance retreated 1.22 per cent.

Sullivan said property stocks were not seeing pressure from the interest rate rise, although Cheung Kong Holdings slipped 0.28 per cent to a three-month low due it its exposure to the euro, while Sun Hung Kai Properties fell 0.25 per cent to a one-month low.

The markets continue to trade against the backdrop of the [Fed] meeting. The US dollar remains king of the hill
Stephen Innes, senior trader, Oanda

Worries about the yuan are underscored by Japan overtaking China as the largest holder of US Treasuries, as China uses its currency reserves to support the renminbi.

Mainland markets tracked higher on Friday. The Shanghai Composite Index was up 0.17 per cent or 5.30 points to 3,122.98 while the CSI 300 — which tracks the large caps listed in Shanghai and Shenzhen — rose 0.17 per cent or 5.60 points to 3,122.98.

The Shenzhen Composite Index gained 0.95 per cent or 18.74 points to 1,991.64 while the Nasdaq style ChiNext advanced 1.13 per cent or 22.26 points to 1,998.11.

Although markets in the US initially pulled back after the interest rate decision, they resumed their post-election rallies overnight on Thursday.

The Dow Jones Industrial Average finished 0.30 per cent higher at 19,850.24 and the S&P 500 tacked on 0.39 per cent to 2,262.03. Meanwhile, the Nasdaq Composite was up 0.37 per cent at 5,456.86.

In Asian trading, Tokyo’s Nikkei 225 gained 0.66 per cent. South Korea’s Kospi was up 0.27 per cent while in Sydney, the All Ordinaries slipped 0.09 per cent.