Hong Kong stocks, currency slip on growing pessimism over economy
Hong Kong dollar eases to two-week low, while yuan hovers near 6.9000 level
Hong Kong stocks declined to a three-week low on Thursday after a surge in the US dollar overnight caused the city’s currency as well as offshore yuan to weaken, triggering pessimism over the economic outlook.
The US dollar and US Treasury yields surged after US Federal Reserve Chairman Jerome Powell said on Wednesday that rates need to continue to move towards an estimated neutral level and even a bit beyond.
He emphasised that the outlook for the US economy is “remarkably positive” and that the expansion now under way can continue “effectively indefinitely”.
The Hong Kong’s dollar has weakened by 0.3 per cent against the US dollar since September 21, while the offshore yuan traded in Hong Kong fell past the key 6.9000 level before rebounding slightly thereafter.
“It’s not looking good when the US dollar is strengthening and causing Asian currencies and their stocks to fall,” said Linus Yip Sheung-chi, a strategist at First Shanghai Securities. “Hong Kong’s stock market downtrend has further room to run.”
The Hang Seng Index fell 1.7 per cent or 467.39 points to 26,623.87, the lowest since September 12.
The Hang Seng China Enterprises Index declined 2.2 per cent or 238.53 points to 10,547.64.
Mainland stock markets are closed this week for a public holiday and will reopen on Monday.
“The market is worried interest rates will rise further, which will have an adverse effect on the stock and housing markets,” said Louis Wong, director at Philip Capital Management. “Investors are worried that when the economy slows, profits would drop, which would lead to overvaluations. So stock prices need to drop to remain attractive.”
On Thursday, HSBC joined Standard Chartered Bank in downgrading the forecast for Hong Kong’s GDP growth. HSBC cut its estimate for the city’s economic growth to 3.5 per cent from 3.8 per cent for 2018, citing higher interest rates and the fallout from the US-China trade war. Standard Chartered cut its estimate for the city’s GDP growth to 3.6 per cent from 3.8 per cent for the full year.
Internet giant Tencent Holdings dropped 2.4 per cent to HK$308.4, and China’s largest lensmaker Sunny Optical Technology (Group) tumbled 5.5 per cent to HK$84, the day’s worst performing blue-chip.
“The stock is still in a downtrend,” said Wong.
Insurance stocks led the drop on Thursday. AIA Group fell 2.8 per cent to HK$63.95, knocking off 68 points off the benchmark index.
ZhongAn Online P & C Insurance plunged 7 per cent to HK$27.85. Ping An Insurance (Group) shed 1 per cent to HK$76.55.
Geely Automobile Holdings shed 4.2 per cent to HK$14.22.
Among Chinese financials, China Construction Bank lost 2.4 per cent to HK$6.45, Industrial and Commercial Bank of China also eased 2.4 per cent to HK$5.38.
Chinese developers also continued to fall. China Overseas Land and Investment dropped 2.7 per cent to HK$23.25, China Evergrande Group lost 2.4 per cent to HK$22.2.
September’s weaker than expected Caixin/Markit Manufacturing Purchasing Managers Index data fuelled worries that China’s economy was taking a hit from escalating trade tensions. The gauge released over the weekend fell to 50.8, shy of the 50.5 consensus forecast by economists. It stood at 51.3 in August. The 50-point mark is the neutral point between expansion and contraction.
“It seems China’s government policy stimulus so far is not really showing up or having an effect on the economy,” Yip said.
Most other Asian markets dropped on Thursday. Tokyo’s Nikkei 225 lost 0.6 per cent to 23,975.62 and the South Korea’s Kospi fell 1.5 per cent to 2,274.49.