Hong Kong and mainland stocks stabilised after Thursday’s routs, but trading was cautious on worries China’s policymakers may continue to tap the liquidity brakes amid signs of economic recovery and overheated markets.
While Friday’s gains were modest – or in China’s case, slim – the trading day at least was not a repeat of Thursday’s panic selling and gave a much-needed confidence boost in Hong Kong and mainland markets, where investors have been rattled as well by rising US-China tensions and rising infections in the US, Hong Kong and elsewhere. Still, the main benchmarks in Hong Kong and Shanghai posted weekly losses.
The Hang Seng Index finished ahead Friday by 0.5 per cent to 25,089.17. The benchmark tumbled 2 per cent – about 511 points – on Thursday, dragging it below the 25,000 resistance level for the first time this month.
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Noteworthy stock moves were index heavyweight Tencent, which gained 1.6 per cent to HK$521, and Alibaba, the e-commerce giant and owner of the South China Morning Post, which advanced 2.4 per cent to HK$238.80. Tencent fell 5.5 per cent on Thursday, while Alibaba slid 4.2 per cent.
Meanwhile, Chinese chip maker Semiconductor Manufacturing International Corp (SMIC) closed up 0.9 per cent, after rising as much as 7 per cent. It plummeted by a record 25 per cent on Thursday, even as its A shares tripled on their mainland debut, but Friday’s gains still left the Hong Kong shares up more than 140 per cent this year.
The top blue chip winner was Hengan International, a leading diaper and sanitary napkin maker in China, which soared 7.1 per cent to HK$66.85, on three reiterated “buy” ratings. One analyst called for shares to hit HK$94 over the next 12 months, and another predicted the company’s earnings will show that its net profit shot up 20 per cent in the first half.
The Shanghai Composite Index turned down by the lunch break, but then eked out a teensy gain of 0.1 per cent to close at 3,214.12.
On Thursday, the benchmark collapsed 4.5 per cent – its biggest fall since February when the unprecedented lockdowns upended travel and businesses and shuttered the economy.
Kweichow Moutai, which tumbled 7.9 per cent Thursday after a commentary in a state-run paper warned that liquor is for drinking not for speculation or corruption, finished ahead by 2.1 per cent at 1,648.05 yuan, trimming an earlier 3.6 per cent gain. It is one of the most heavily traded stocks on the Stock Connect, and was the biggest contributor to the benchmark’s fall on Thursday.
“Both Hong Kong and [mainland] A share markets were stable, with Moutai up 2 per cent with heavy turnover. This was a good sign indeed,” said Alan Li, portfolio manager at Atta Capital. “The alternative might have been even more panic selling.”
The Shenzhen Composite Index also stabilised, rising 0.7 per cent after its 5.2 per cent plunge Thursday. Meanwhile, the ChiNext board of next-generation companies rose 0.6 per cent after its 5.9 per cent drop the previous day.
The bargain hunting in Hong Kong and China suggested investors – though guarded – looked for bargains after Thursday’s rout, seeing it as an opportunity rather than the start of a big correction and that they overall remain confident in markets. However, the Hang Seng snapped back-to-back weekly gains, ending with a 2.5 per cent weekly decline, while Shanghai’s benchmark suffered its first weekly loss – amounting to 5 per cent – in a month.
Thursday’s rout in both markets was triggered by concerns that China’s markets were overheated and that the latest data showing second-quarter recovery in the world’s largest economy might prompt policymakers to turn off the liquidity taps. Meanwhile, worse-than-expected retail sales released on Thursday signalled Chinese consumer demand has not returned. The concerns spilled over to Hong Kong, whose main benchmark is heavily made up of Chinese companies.
Chinese authorities are wary of a repeat of the 2015 meltdown that wiped out US$5 trillion in market capitalisation within weeks.
Investors have got mixed messages from influential state-run media.
Late on Thursday, the Securities Times warned investors of near term corrections, but said these would provide opportunities to buy the dip. In the long-run, the upward trend will not change, it said, adding that it remained bullish on science and technology sectors.
But last week, the China Economic Times fretted about a “crazy” bull market, while the Securities Times said a “healthy” bull market boosts China’s economy.
The Goldilocks messages – the search for a market that is just right – comes as a number of state-run companies have said they will cut some of their stock holdings and authorities have taken steps to curb excessive margin lending.
“The market bulls are left crying in their beer over what could have been if it were not for the unexpected miss on China’s retail sales number and mainland regulators slamming the brakes on the stock market rally,” said Stephen Innes, chief global markets strategist at AxiCorp.
Elsewhere in the Asia-Pacific region, Japan’s Nikkei 225 saw small losses, while Australia’s S&P/ASX 200 and South Korea’s Kospi rose less than 1 per cent.
Meanwhile, Jefferies remains bullish on Hong-Kong Chinese property stocks, especially mid-cap players, and advises investors to take a look after they pulled back from a recent rally.
National property sales extended their good recovery in June, rising 2.1 per cent year on year in volume and 9 per cent in value, analysts Stephen Cheung and Calvin Leung noted. They expect the physical market recovery to continue in the third quarter, with further outperformance from quality mid-caps given their 30 per cent to 40 per cent year on year sales growth.
“We remain bullish and suggest adding positions on Aoyuan/ KWG/ CIFI amid sector pull-back, for their strong sales, good [first half] results and attractive valuations,” they wrote.
Separately, Jefferies released its Hong Kong top picks for the next 12 months, ranked by preference.
Mengniu Dairy in Hong Kong “should benefit from market consolidation and government’s encouragement to increase milk consumption to enhance consumers’ immunity systems”, Jefferies analysts said. Li Ning in Hong Kong should see recovery in demand, and its recent price drop offers a buying opportunity, they said. Tsingtao Brewery, both its Hong Kong and mainland shares, stand to gain from capacity restructuring and mix upgrade, while home-appliance maker Midea, listed in the mainland, will be helped by efficiency improvements, they said.
Additional reporting by Martin Choi
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