China market rally falters alongside key Asian markets after kicking off trading in the Year of the Ox with a bang

Martin Choi
·4-min read

Chinese markets, which kicked off the Year of the Ox on a strong note, took a breather along with key Asian markets in Hong Kong, Japan and South Korea, as concerns about the impact of rising Treasury yields, overvalued tech stocks and inflation weighed on investor sentiment.

The CSI 300, which tracks the 300 biggest stocks on the Shanghai and Shenzhen stock exchanges, slipped 0.7 per cent to 5,768.38, after opening 2 per cent higher at a record 5,922.07. The Shenzhen Component retreated 1.2 per cent to 15,767.44, after rising as much as 2.1 per cent. The Shanghai Composite bucked the trend, adding 0.6 per cent to 3,675.36 after paring gains of as much as 2.1 per cent.

The yield on benchmark 10-year US Treasury notes briefly rose above 1.33 per cent on Thursday before retreating below the 1.3 per cent level. A day earlier it went past 1.3 per cent for the first time since February 2020 when the pandemic broke out.

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Although the mainland markets were dragged lower by concerns over rising inflation and US Treasury yields, it does not mean that the bull run is coming to an end, said Stanley Chan, director of research at Emperor Securities.

“A controlled correction is healthy for a sustained bull market,” said Chan. “The current outlook for the economy is improving, and the pandemic is slowly coming under control.”

In Hong Kong, shares fell after reaching the 31,000 level for the first time in 32 months.

The Hang Seng Index dropped 1.6 per cent to 30,595.27, after opening 0.3 per cent higher. It had risen for seven straight sessions up to Wednesday.

Analysts said technology stocks in particular have come under pressure from rising US Treasury yields, economic recovery prospects and overvalued names.

“Investors continued to retreat from expensive tech names that have powered the market higher this year as the [Treasury yield] rates debate remains heated,” said Stephen Innes, chief global markets strategist at Axi. “Improving Covid trends and robust economic data allow investors to turn their attention to updates on reopening timelines,” said Innes.

The Hang Seng Tech Index of top technology companies fell 3.2 per cent to 10,591.53, after reaching a record high of 10,945.22 on Wednesday.

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AAC Technologies, a major supplier of components to Apple, led declines on the benchmark Hang Seng Index. It fell 5.8 per cent to HK$45.40, after rising 7.1 per cent on Wednesday.

Chinese tech giant Tencent fell 1.3 per cent to HK$747.50, while Alibaba, the owner of this newspaper, fell 2.5 per cent to HK$260.40. Delivery giant Meituan fell 5.2 per cent to HK$428.

Asset manager Schroders was also cautious about high-flying tech companies, given their high valuations and the anti-monopoly regulation which was introduced in November.

“We think this could cloud things for the sector in the near term,” said Stephen Kam, head of product management for Asia ex-Japan equities at Schroders.

“A broad global economic recovery following a successful vaccine development should benefit cyclical sectors, where valuations are still cheap currently compared to growth sectors.”

Shares of Kweichow Moutai fell 5 per cent in Shanghai on Thursday. Photo: Simon Song
Shares of Kweichow Moutai fell 5 per cent in Shanghai on Thursday. Photo: Simon Song

In Shanghai, Kweichow Moutai, the most expensive Chinese stock, retreated 5 per cent to 2,471 yuan. At the prevailing market price, Moutai is capitalised at around 3.1 trillion yuan (US$480 billion), which makes it the world’s 12th largest company by value, behind Warren Buffett’s Berkshire Hathaway and larger than Visa.

ICBC slipped 0.2 per cent to 5.24 yuan, after advancing by as much as 1.5 per cent to an intraday high of 5.33 yuan, briefly making it China’s largest bank by value.

New Horizon Health, a Chinese maker of home test kits for colon cancer, soared 215.1 per cent to HK$84 from its listing price of HK$26.66.

In the Asia-Pacific region, Japan’s Nikkei 225 slipped 0.2 per cent, while South Korea’s Kospi dropped 1.5 per cent. Australia’s S&P/ASX200 was little changed.

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