Hong Kong and China stocks fall on commodities and bond turbulence while Tencent drops ahead of earnings

Hong Kong stocks post their steepest decline in almost four weeks, while some of the mainland’s best-performing small-cap shares fall on pessimism about liquidity outlook

PUBLISHED : Wednesday, 15 November, 2017, 9:11am
UPDATED : Wednesday, 15 November, 2017, 10:49pm

Hong Kong and mainland Chinese stocks both fell on Wednesday after commodities tumbled and on mounting concern that the recent bond turmoil will spill over to equities.

The Hang Seng Index dropped 1 per cent, or 300.43 points, to 28,851.69 at the close, the steepest decline in almost four weeks. Mainland’s Shanghai Composite Index retreated 0.8 per cent, or 27.02 points, to 3,402.52, as some of the best-performing small-cap shares this year slumped on pessimism about the liquidity outlook amid the recent sell-off in bonds.

A measure of six metals including copper and aluminium on the London Metal Exchange slid 2 per cent on Tuesday in the biggest drop in two months, and crude oil futures retreated the most in more than a month in New York.

While China’s 10-year government bonds rebounded after a decline that sent the yield above 4 per cent for the first time in three years, Shanghai-based brokerage Shenwan Hongyuan Group said the shake-out was far from being over as policymakers are more tolerant of poor economic data and therefore unlikely to loosen monetary policies.

“The risk-off model is on after the drop in all these asset classes,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “The bad sentiment has spilt over to the stock market and we have seen some profit-taking activities.”

Trading volumes on the Hong Kong stock market were 14 per cent below the 30-day average while those on the Shanghai bourse almost matched the average level, according to Bloomberg data.

Raw material producers were among the worst performers on the Hang Seng Index on Wednesday. PetroChina, China’s biggest oil company, fell 3.1 per cent to HK$5.25, and CNOOC dropped 2.9 per cent to HK$10.58. Jiangxi Copper sank 1.3 per cent to HK$12.08.

The bad sentiment has spilt over to the stock market and we have seen some profit-taking activities
Dai Ming, Hengsheng Asset Management

Semiconductor Manufacturing International Corp plummeted 14 per cent to HK$11.70 after saying that third-quarter net income plunged 77 per cent from a year ago. Credit Suisse lowered its rating on the stock to underperform, citing a slow recovery and low gross profit.

Tencent Holdings lost 1.3 per cent to HK$383. The Chinese internet giant said its third-quarter profit increased to 18 billion yuan (US$2.7 billion) after the market closed on Wednesday. That exceeded the estimate of 15.8 billion yuan in a Bloomberg poll.

Geely Automobile Holdings, the best performer on the Hang Seng Index this year with a more than 200 per cent increase in its stock price, tumbled 3.4 per cent to HK$27.25.

“Southbound investors are taking profit in key stocks for financials, autos and technology,” said Kingston Lin King-ham, a securities brokerage director at Hong Kong-based AMTD, referring to mainland Chinese investors buying Hong Kong shares through the stock connect schemes. “They want to lock in profit ahead of Tencent’s results.”

In the mainland, the Shenzhen Small and Medium Enterprises Index of 100 smaller companies on the city’s bourse tumbled 2.1 per cent in the steepest decline since July 17 on Wednesday.

The gauge had risen 26 per cent through Monday this year, outperforming any major benchmark tracking mainland equities including the CSI 300 Index of big-cap shares.