Hong Kong stocks edge up on Wednesday, as market awaits outcome of two-day Fed meeting

Zhang Shidong
·3-min read

Hong Kong stocks nudge up slightly on Wednesday, as traders braced for a meeting of the US Federal Reserve and the yield on the benchmark American Treasury lingered close to a one-year high.

The Hang Seng Index rose less than 0.1 per cent to 29,034.12 at the close after changing directions at least 10 times during the day. The gauge has now risen 1 per cent in three trading days. On the mainland, the Shanghai Composite Index lost less than 0.1 per cent.

Galaxy Entertainment Group and Budweiser Brewing gained more than 4 per cent and were among the best performers in Hong Kong, while Sunny Optical Technology Group and China Petroleum & Chemical led declining stocks, falling by at least 2.7 per cent.

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Major markets across Asia were mostly down, with benchmarks from Australia to South Korea retreating by at least 0.5 per cent. The market in Japan held onto moderate gains. That followed a quiet overnight session in the United States, where the Nasdaq Composite closed higher and the S&P 500 and the Dow Jones Industrial Average retreated.

The Federal Open Market Committee (FOMC) has begun a two-day meeting, as the yield on the 10-year Treasury climbed to 1.63 per cent and a gauge of implied inflation rose to its highest level in 12 years. Bill Gross, who used to manage the world’s biggest bond fund at Pacific Investment Management, is betting against US debt and forecasts that inflation will accelerate to between 3 per cent and 4 per cent in coming months, because of rising commodity prices, a weaker dollar and US President Joe Biden’s fresh US$1.9 trillion relief package.

“With 10-year yields remaining above 1.6 per cent, investors are ostensibly buckling in for higher inflation,” said Stephen Innes, a strategist at Axi. “Even the slightest hint of any rate rise expectations moving forward would see equities move significantly lower. Will central bank messaging then become more market dependent rather than data-dependent in their views? Perhaps we might find a hint of that view via the FOMC messaging.”

An uptick in debt yields has taken global stocks on a roller-coaster ride over the past month, and traders were wary that expectations about looming inflation would spur central banks to put brakes on easy money that has fuelled stocks’ elevated valuations, particularly among technology and consumer companies. The trend of rotating into value stocks from new-economy companies has taken hold recently, with investors dumping richly-valued companies and jumping onto shares that stand to benefit from an economic recovery.

Meanwhile, ZTE surged 7.4 per cent to HK$21.80 in Hong Kong and its Shenzhen-traded stock jumped 6.9 per cent to 30.53 yuan. Its first-quarter profit probably surged by as much as 208 per cent from a year earlier, as margins improved and the company booked a gain of 774 million yuan (US$119 million) from a stake sale, the Chinese telecoms equipment maker said in an exchange statement.

OFILM Group, a maker of touchscreens and video head modules, tumbled by the 10 per cent daily cap to 9.14 yuan in Shenzhen. A major client has terminated procurements from the company recently, it said in a statement. Sales to the unidentified client made up 23 per cent of OFILM’s revenues in 2019 and the estimated asset-impairment loss of related equipment accounted for 32 per cent of its book value in 2020, it said.

GRIPM Advanced Materials surged 290 per cent from its initial public offering price to 41.47 yuan on Shanghai’s Star Market on its first day of trading.

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