Hong Kong stocks rallied for a second consecutive session on Tuesday, as traders continued to brush off US President Donald Trump’s threats to sanction China over steps to increase its grip on the city.
The Hang Seng Index advanced 1.1 per cent to 23,995.94, That followed Monday’s 3.4 per cent jump – its biggest one-day increase in more than two months. Traders expressed relief that Trump’s threats last Friday about China’s new security law were short on specifics and a time table.
“As there’s no immediate action to sanction Hong Kong and China, and also no schedule to strip Hong Kong of its special status, people expect there may be room for negotiation,” said Alan Li, portfolio manager at Atta Capital.
“Short covering and bottom fishing are boosting the market rebound. However, long-term concern about the US-China relationship is still bothering market,” said Li, who predicts the Hang Seng Index will hit resistance at 24,000, sparking a sell-off.
Unease over the US-China relationship has been on display since May 22, when Hong Kong stocks plummeted 5.6 per cent on news Beijing intends to impose the controversial security law on the city, targeting as yet unspecified terrorism and other acts against the state. In the seven sessions since then, stocks have gained on four days and lost on three days.
Thursday may be the next test for Hong Kong stocks, when a vigil is traditionally held in the city to commemorate the June 4, 1989 Tiananmen Square crackdown. The police have banned the vigil for the first time, citing health concerns over the coronavirus, but vigil organisers expect people will gather and observe a moment of silence in Victoria Park.
For now, Hong Kong traders have shifted their focus from the coronavirus pandemic to what the US may do in response to the security law. China has told state-owned agricultural giants to scale back imports of US soybeans and pork, according to a Bloomberg report. But, at least so far, traders are betting that the souring relations won’t upend the hard-won phase one trade deal. The trade issue roiled global stocks.
The Shanghai Composite Index closed with a 0.2 per cent gain, with liquor giant Kweichow Moutai slipping 0.6 per cent to 1,410.71 yuan, after hitting an all-time high on Monday. The stock has seen a jaw-dropping 40 per cent gain over the past 10 weeks, prompting US research giant Morningstar to warn it is way overpriced.
In Hong Kong, real estate was one of the strongest sectors, with Link REIT shooting up more than 6 per cent. The shopping centre and car park owner posted stronger-than-expected net property income on Monday, when it soared 5.8 per cent. Morgan Stanley raised Link’s rating to “equalweight” from “underweight”. Shares have been clobbered by protests, the virus and the decline in mainland tourism, falling 28 per cent over the past year.
Health care was also a strong sector, with CSPC Pharmaceutical Group shooting up 4.6 per cent to HK$16.38 as CCB International Security initiated coverage of the China medicine giant at “outperform” and gave it a 12-month price target of HK$18.40.
Sentiment also was buoyed in Hong Kong and the mainland by steps to help small businesses in China. The country’s five largest banks were told to make loans more easily available and extend loan repayment deadlines. In addition, the central bank said it will offer lower rates and other measures to encourage financial institutions to extend loans to small businesses.
Hainan-based companies were top gainers on the mainland after Beijing announced a plan to build Hainan province into a free-trade port by 2025. The government unveiled specific measures, including favourable tax treatment, and stressed free-duty characteristics of goods trading with the southern island. Hainan Haide Industry and Hainan Dadonghai Tourism Centre surged to the daily limit of 10 per cent.
Traders continue to watch unrest in the US, where the death of a black man in police custody has set off protests in cities across the country as well as acts of vandalism and looting. Trump has threatened to send in the military to quell the violence.
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