Hong Kong stocks log worst week in 4 months as Tencent leads tech sell-off

Hong Kong stocks dropped a combined 1.6 per cent for the first week of July, the worst weekly performance in four months, as the tech sector retreated heavily and Chinese internet giant Tencent took a hit after a fierce attack by the Communist Party’s mouthpiece against its “addictive” hit mobile game Honour of Kings.

The Hang Seng Index fell 0.5 per cent, or 124.37 points, to close Friday at 25,340.85. For the week, the index was down 1.6 per cent, the biggest percentage loss since the week that ended March 3.

The Hang Seng China Enterprises Index, which tracks the performance of Hong Kong-listed Chinese companies, declined 0.9 per cent to finish at 10,251.83.

Before this week, the Hang Seng had risen for six months in a row, the longest stretch of monthly gains since 2007.

“The Hang Seng Index has breached the 25,600 level. I think it has potential to seek even lower levels in the near term,” said Linus Yip, chief strategist for First Shanghai Securities.

“Global central banks have shown intentions to tighten monetary policy. Geopolitical risks also seem to be on the rise. These are risk factors to the market.”

Hong Kong-listed tech shares had a turbulent week, following their battered US counterparts. In particular, Tencent Holdings, which has a 10 per cent weighting in the Hang Seng Index, slid 3.7 per cent for the week. On Friday, it dropped 1 per cent to close at HK$269.

“Global tech stocks are currently in a correction. Tencent is no exception. ” Yip said.

“Asian stocks, especially Hong Kong names, have always had a close correlation to US stock action,” said Brett McGonegal, chairman and chief executive of Capital Link Investment Holdings. “Given the US market is being driven by a handful of tech names, it makes perfect sense that the correlation is now largely driven by this group.”

“The correlation is a direct example of just how intertwined global markets have become. This close relationship among global markets has always been led by US stocks.”

Some analysts also attributed Tencent’s slide to the harsh criticism by the state-run People’s Daily, which published several editorials on Tuesday and slammed Honour of Kings, the world’s most popular role-playing mobile game. The newspaper described the game as a “poison” and “drug” that’s harming teenagers. On Tuesday, Tencent tumbled 4.1 per cent.

Software developer Kingsoft Corp dropped 1.5 per cent to HK$19.26 on Friday. Online game developers IGG Inc and Forgame Holdings lost 2 per cent and 1.1 per cent each to HK$11.68 and HK$14.06.

Chinese consumer stocks also declined on Friday. Want Want China,one of the country’s biggest snack food producers, declined 3 per cent to HK$5.17.

Hengan International, which is China’s largest maker of sanitary napkins and baby diapers, fell 1.4 per cent to HK$58.95.

Chinese property developer Sunac China sank 6.9 per cent to HK$14.80, after local media reports said Sunac chairman Sun Hongbin might step in as the new chair of struggling tech giant LeEco, which has seen its founder Jia Yueting resign all positions on Thursday in a shock move to the market. Sunac China announced previously it will invest 15 billion yuan in LeEco.

Banks were also weak, with Bank of China down 1.9 per cent to HK$3.61 and ICBC off 1.2 per cent to HK$4.88.

However, China Vanke advanced 2 per cent to HK$23.55 after resuming trading . The company said it has set out main terms for its 55.1 billion yuan (US$8.1 billion) acquisition of certain assets of Guangdong International Trust Investment Corporation.

Hong Kong brokerage firm Jun Yang Financial Holdings was among the top percentage gainers on Friday. It rose 2 Hong Kong cents, or 31.7 per cent, to 10 Hong Kong cents before suspending the share trading in the afternoon.

The company said later in a statement that it was not aware why shares had surged. It also issued a profit warning for the first half of this year, expecting losses to reach HK$706 million.

In mainland exchanges, the benchmark Shanghai Composite Index rose for a third day in a row, up 0.2 per cent, or 5.52 points, to close at 3,217.96.

For the week, the index has risen 0.8 per cent, also marking a third straight week of gains.

The large-cap CSI300 dipped 0.1 per cent to 3,655.93. The Shenzhen Composite Index added 0.2 per cent to 1,918.13, while the ChiNext index slipped 0.2 per cent to 1,835.44.

Combined daily turnover for Shanghai and Shenzhen markets decreased 2 per cent from Thursday to 466 billion yuan.

Resource shares advanced broadly.

Cement manufacturer Anhui Conch Cement jumped 3.1 per cent to 23.33 yuan. Smaller rival Gansu Shangfeng Cement surged 7.7 per cent to 9.79 yuan. Rare earth company Shenghe Resources Holding soared 10 per cent to 15.84 yuan.

Overnight in the US, stocks closed sharply lower. The Nasdaq fell 61.39 points, or 1 per cent, to close at 6,089.46. The Dow Jones Industrial Average dropped 158.13 points, or 0.74 per cent, to close at 21,320. The S&P 500 closed down 22.79 points, or 0.94 per cent, to finish at 2,409.75.

Electric-car maker Tesla slid into bear market territory and fell 5.6 per cent.

“US tech stocks have had a meteoric rise and have defied gravity with what seems to be an endless bid. The simple fact is, yes, technology is the driver of the future but investors have just pushed prices to an extreme,” McGonegal said, explaining the recent sell-off in tech shares.