Hong Kong shares slip after top banks including HSBC raise prime lending rates

Some of Hong Kong’s major lenders raise their prime rates after the city’s de facto central bank increases its base rate in lockstep with the US Federal Reserve

PUBLISHED : Thursday, 27 September, 2018, 10:23am
UPDATED : Thursday, 27 September, 2018, 5:36pm

Hong Kong stocks fell on Thursday after HSBC and other top banks said it would raise its prime lending rate for the first time in a decade, taking its cue from the US Federal Reserve and the Hong Kong Monetary Authority.

The Hang Seng Index slid 0.4 per cent, or 101.20 points, to 27,715.67. The Hang Seng China Enterprises Index, or the H-share gauge, also fell 0.4 per cent.

China’s Shanghai Composite Index retreated 0.5 per cent even after UK index compiler FTSE Russell said it would add Chinese stocks to its benchmarks starting next year.

HSBC, the biggest lender in the city, said it would lift its best lending rate by 12.5 basis points to 5.125 per cent, effective from Friday. Earlier in the day, the HKMA raised the base lending rate after a quarter-point increase in the federal funds rate by the Fed. Standard Chartered and Hang Seng Bank raised rates in lockstep with those of HSBC.

The increase in borrowing costs, though marginal, by the city’s major banks stoked concerns that Hong Kong dollar prime rates were now more likely to follow the Fed’s rate-rise cycle. The Fed has projected four more increases by the end of 2019.

“The rise in capital costs will put pressure on those industries that are capital-intensive,” said Shi Bin, a Hong Kong-based portfolio manager at UBS Asset Management with US$12 billion in assets. “But the Fed’s rate increase will be gradual and Hong Kong is simply catching up with that. We won’t see a significant increase in the interest rates, so the impact on Hong Kong’s economy will be limited.”

Property developer China Resources Land slumped 3.9 per cent to HK$27.40, the second-worst performer on the Hang Seng Index. Country Garden Holdings shed 1.9 per cent to HK$10.42.

Casino companies were also among the biggest decliners. Galaxy Entertainment dropped 4.5 per cent to HK$50.30 and MGM China Holdings tumbled 4.9 per cent HK$12.32.

Tencent Holdings, the biggest weighting on the Hang Seng Index, lost 1.4 per cent to HK$325.40.

Chinese hotpot chain Haidilao International Holding breached its initial public offering price on the second day of trading, sinking 5.1 per cent to HK$16.92 against the offer price of HK$17.80.

Genscript Biotech slumped 27 per cent to HK$11.86 before being suspended. Short seller Flaming Research accused the pre-clinical drug maker of falsifying clinical data and set a target price of HK$3.29.

Some banks and insurers rose on expectations that rising prime rates would generate higher revenue and incomes for financial companies. Hang Seng Bank climbed 2.1 per cent to HK$213.40. AIA Group gained 1.3 per cent to HK$69 and ZhongAn Online Insurance added 0.5 per cent to HK$33.15.

In the mainland, the Shanghai Composite Index fell 15.04 points to 2,791.78. The CSI 300 Index of big-caps slipped 0.4 per cent and the ChiNext gauge of smaller companies lost 1.4 per cent.

UK index compiler FTSE Russell to add Chinese stocks to its global equity gauges

Foreign investors bought into mainland stocks through the connect programmes with the Hong Kong exchange for 10 days in a row through Thursday after FTSE Russell said it will include Chinese equities in its global gauges starting June 2019. The inclusion will bring an inflow of US$10 billion and China’s yuan-traded A shares will make up an initial 5.5 per cent of the weighting in the FTSE Emerging Index.