Hang Seng Index

Hong Kong stocks slide to pare monthly gain as slowing manufacturing stokes bad loan concern

China’s official purchasing managers’ index for October printed at 51.6, slowing from a five-year high of 52.4 in September

PUBLISHED : Tuesday, 31 October, 2017, 9:12am
UPDATED : Wednesday, 01 November, 2017, 12:06am

Hong Kong stocks fell for a second day, trimming a monthly advance, on mounting concern that bad loans at Chinese banks will increase after Bank of China reported worse-than-expected earnings growth and official data showed China’s manufacturing activities slowed.

The Hang Seng Index retreated 0.3 per cent, or 90.65 points, at 28,245.54, capping a 2.5 per cent gain in October. The Hang Seng China Enterprises Index, or the H-share gauge, declined 0.5 per cent to 11,507.72. Mainland’s benchmark gauge added 0.1 per cent, rebounding from its biggest decline in 11 weeks, after the central bank injected cash into the financial system.

Equities traded at the negative territory for most of the day as data showed China’s manufacturing industry expanded at a slower pace in October. The manufacturing purchasing managers’ index (PMI) printed at 51.6, the National Bureau of Statistics said on Tuesday. The gauge slowed from a five-year high of 52.4 in September and missed the median estimate of 52 in a Bloomberg poll of economists. A separate PMI released on the same day showed the nation’s service industry also slowed.

The sluggish reading of factory activity may imply a bounce in mainland banks’ non-performing loans, said Castor Pang Wai-sun, head of research at Core Pacific-Yamaichi.

“The bad assets held by Chinese banks have been falling since the start of this year, and investors’ fear of the bad loans may come back as manufacturing activities weakened,” said Pang.

Financial stocks provided the biggest drag on the Hang Seng Index, with a sub-index of banks and insurers falling 0.8 per cent as the worst performer among industry groups.

The bad assets held by Chinese banks have been falling since the start of this year, and investors’ fear of the bad loans may come back as manufacturing activities weakened
Caster Pang, Core Pacific-Yamaichi

Bank of China declined 3.5 per cent to HK$3.89, its biggest drop since July 6. Third-quarter profit increased 0.1 per cent from a year earlier to 41.8 billion yuan (US$6.3 billion), the lender said after the market closed on Monday. The result trailed the 8.8 per cent average profit growth estimate of four analysts polled by Reuters.

Its non-performing loan ratio rose to 1.41 per cent at the end of September from 1.38 per cent three months ago.

BOC Hong Kong Holdings slumped 3.1 per cent to HK$37.15 after reporting a 1.2 per cent quarter-on-quarter decrease in third-quarter profit a day earlier.

Industrial and Commercial Bank of China slid 1.9 per cent to HK$6.19. The nation’s largest bank by assets said on Monday net income rose 3.55 per cent on year to 75 billion yuan for the three months through September. The result beat the projection of a 2.5 per cent profit growth.

New China Life Insurance declined 2.6 per cent to HK$48.75 on speculation that major shareholder Swiss Reinsurance Company sold 75 million shares in the insurer for HK$3.5 billion.

In the mainland, the Shanghai Composite Index rose 3.01 points to 3,393.34, adding to a 1.3 per cent gain for the month. The ChiNext gauge of smaller growth firms jumped 0.7 per cent.

Stocks and bonds both rebounded on Tuesday after the central bank injected a net of 80 billion yuan into the banking system through reverse re-purchase agreements, allaying concerns about strained liquidity.

The yield on China’s 10-year government bonds fell 2.8 basis points to 3.88 per cent after surging to a three-year high on Monday, triggering a sell-off that sent the Shanghai Composite to its steepest loss since August.