Hong Kong stocks retreat as Fed signals rate rise likely next month

‘Market is losing steam,’ analyst said, as investors are cautious amid expected higher borrowing costs and trade war

PUBLISHED : Thursday, 23 August, 2018, 6:27pm
UPDATED : Thursday, 23 August, 2018, 6:44pm

Hong Kong’s stock market retreated on Thursday, weighed down by fresh signals the US will raise its benchmark interest rate next month and the ongoing trade war with China.

The Hang Seng Index slipped 0.5 per cent, or 137.12 points, to close at 27,790.46. The Hang Seng China Enterprises Index fell 0.3 per cent, or 35.57 points, to 10,814.60.

“The market is losing steam after over an 800-point rise in the past week and is facing technical resistance at the 28,000 level,” said Steven Leung Wai-yuen, executive director at UOB Kay Hian Hong Kong. “People are back to wait-and-see mode on the trade talks.”

The world’s two largest economies have slapped tariffs on billions of dollars of each other’s products since early July, with more in the pipeline, adding to risks to global economic growth. On Thursday, China put 25 per cent tariffs on an additional US$16 billion worth of goods, responding to the US’s latest move.

China slaps back at latest United States tariffs in trade war escalation

Expectations that the US Federal Reserve will tighten monetary policy next month, after already raising rates twice so far this year, also weighed on China’s yuan and on equities.

Minutes of the Fed’s last policy meeting released overnight signalled that further rises are in store to counter inflation, which has raced ahead of the central bank’s 2 per cent target.

Among those bucking Thursday’s downtrend were Sino Biopharmaceutical and Genscript Biotech.

Sino climbed 4.4 per cent to HK$9.73, after it announced that revenue expanded 30 per cent from a year earlier in the first half of the year, compared to 9 per cent growth in 2017 and an 11 per cent rise in the first quarter of 2018, thanks to the launch of new drugs.

Genscript Biotech surged 8.5 per cent to HK$15.02 ahead of the release of its interim results on Monday.

Meanwhile, CSPC Pharmaceutical Group rose 2.9 per cent to HK$19.78, marking its highest level since August 13.

Property stocks fell to their lowest levels in a month in the morning, as worries grew in Hong Kong that the US signal will mean higher costs for local home borrowers.

Property shares slide in Hong Kong to one-month lows as interest rate worries grow

The Hang Seng China Enterprises Index, which tracks mainland Chinese firms trading in Hong Kong, slipped 0.3 per cent, or 35.57 points, to 10,814.60.

Among the day’s big losers was AAC Technologies Holdings, which slid 4.2 per cent to HK$84.65, making it the worst-performing blue chip. A series of brokers cut the Apple supplier’s target price following Wednesday’s lower-than-expected interim results.

The company’s target price was cut to HK$110 from HK$160 by Daiwa, lowered to HK$102 from H$125 by Morgan Stanley, and trimmed to HK$145 from HK$155 by JPMorgan.

Internet giant Tencent Holdings slipped 0.1 per cent to HK$359, snapping four days of increases.

Medical and health care stocks bucked declines.

Mainland China stocks ended up. The Shanghai Composite Index rose 0.4 per cent or 10.01 points to 2,724.62 The CSI 300 – which tracks the large caps listed in Shanghai and Shenzhen – increased 0.4 per cent, or 12.07 points, to 3,320.03.

The Shenzhen Composite Index gained 0.6 per cent, or 9.17 points, to 1,463.69, and the Nasdaq-style ChiNext rose 1.1 per cent or 15.95 points to 1,455.50.

Share turnover hit a four-year low in Shanghai on Wednesday.

Turnover on Shanghai Stock Exchange shrinks to four-year low as traders see no sign of bottom

Bank of America Merrill Lynch said in a research note that China’s equity market had not reached a bottom yet, given that recent stimulus policies were possibly behind the curve, and that would result in a continuation of disappointing economic growth.

“For the coming bottom of the market, if trade tariffs can be avoided, we are looking for signs of a significant easing of the authority’s control over local government debt similar to that of late 2015 and with a lag, clear signs of growth stabilisation,” Bank of America said.