Hang Seng Index logs worst week since September as China drains liquidity and volatile US trading spook investors

Zhang Shidong
·4-min read

Hong Kong stocks logged their first weekly loss this year sparked by the biggest global markets sell-offs since October and concerns about surging money-market rates in China. Valuation froth and declines in US stock index futures spooked traders.

The Hang Seng Index slid 0.9 per cent to 28,283.71 at the close on Friday, reversing an intraday gain of as much as 1.5 per cent. The benchmark slumped 3.95 per cent for the week, the worst setback since a 4.99 per cent tumble in the five days ended September 25, according to Bloomberg data.

China’s Shanghai Composite Index lost 0.6 per cent to 3,483.07, bringing the drop in the week to 3.43 per cent, also the most since the end of September.

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Country Garden, Geely Automotible and Hengan International were among the biggest decliners among Hang Seng Index members on Friday, each sinking by at least 3.8 per cent.

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Other major markets across the Asia-Pacific region all fell, tracking cues from the futures contracts on key US stock benchmarks that flipped into losses in afternoon trading. Fears of wild price swings rattled markets as some online brokerages imposed curbs on speculative trading by day traders that walloped hedge funds.

“The retreat by the US index futures in aftermarket trading has raised doubts among Asian investors about the longevity of the main session rally overnight,” said Jeffrey Halley, a strategist at Oanda. “That has led regional markets to adopt a more cautionary stance into the end of the week, leading to flow driven mixed performances.”

Hong Kong’s stocks had logged 11 per cent earlier this month in a new-year rally not seen since 1985, before paring gains amid concerns about frothy valuations.

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China’s overnight repo rate, a gauge of funding availability on the money market, rose to 3.3 per cent on Friday, the highest level since 2015. The liquidity squeeze came after the People’s Bank of China unexpectedly mopped up cashes from the financial system this week, adding to angst that the Asian nation may have already begun fine-tuning the accommodative monetary policy amid the recovery of the economy.

“We need to be vigilant against those stocks whose earnings growth cannot match valuations,” said Fan Tingfang, a fund manager at HFT Investment Management. “We should pay more attention to earnings. I am optimistic about first-quarter profits, which are supposed to be good because of the low base last year and the action to move some production capacity to China amid the pandemic.”

Mainland traders spent HK$12.5 billion (US$1.6 billion) buying Hong Kong stocks on Friday, completing a 28th straight day of net inflows, according to Bloomberg data. Net purchases totalled HK$310.6 billion in January.

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Alibaba Group Holding, the owner of the South China Morning Post, slid 1.9 per cent to HK$246.80. The e-commerce giant probably posted a 22 per cent increase in third-quarter earnings, the slowest pace for such a period in five years, according to Bloomberg data. The report is due on February 2.

Li Ning, the Chinese sportswear maker, climbed 2.2 per cent to HK$48.55. The company will be less affected by the travelling restriction imposed by Beijing during the Lunar New Year, because of less exposure to winter-sports apparels and gears and fewer stores in smaller cities, according to Citigroup.

Cathay Pacific Airways, the city’s flagship carrier, rose 0.5 per cent to Hk$5.98 after Daiwa upgraded the stock from hold to buy, saying that investors have overreacted to the recent negative news.

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