Hong Kong’s world-beating stock market rally cooled, with the benchmark index tumbling by the most in eight months. Red-hot performers including Tencent Holdings to Hong Kong Exchanges & Clearing (HKEX) sank on concerns that this month’s rally is excessive, wiping out US$189 billion in market value.
The Hang Seng Index sank 2.6 per cent to 29,391.26 at the close on Tuesday, the biggest slide since a 5.6 per cent sell-off on May 22. The gauge retreated just a day after closing above 30,000 for the first time since May 2019. Some 37 of 52 index members traded lower.
China’s Shanghai Composite Index also fell, shedding 1.5 per cent from a December 2015 high, after the central bank unexpectedly drained liquidity from the financial system amid caution about stock bubbles.
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WeChat operator Tencent slumped 6.3 per cent from a record high to HK$718.50. The stock surged 11 per cent on Monday in the biggest one-day spike since October 2011, lifting its market to US$949 billion and to within 5.5 per cent of breaking into the five-member exclusive club of US$1 trillion companies.
HKEX, which is seen as a beneficiary of rising trading volumes, plunged 7.2 per cent to HK$513. Meituan slid 5.3 per cent to HK$378.60 from an all-time high and WuXi Biologics lost 4.5 per cent to HK$115.50.
The Hang Seng Index had risen by 11 per cent this year through Monday, the best start to a year since 1985, aided by record inflows from mainland funds via the Stock Connect programme. That sent the technical reading on its 14-day relative strength index to as high as 86.3, well above the 70 threshold that signals stocks are overbought and may be due for a pullback.
“Hong Kong’s stocks will be in for [great] volatility against the backdrop of a bumpy global recovery,” said Zhang Yulong, an analyst at CSC Financial. “Buying needs to be selective as the traditional sectors trading in Hong Kong, such as banks and property developers, do not have too many valuation advantages.”
More than one-fifth of the Hang Seng Index constituents were emitting the overbought signal last week, before easing to 12 per cent on Monday, according to Bloomberg data. Among major global equity markets, only Nasdaq-listed companies have higher ratio in the overbought zones at 16 per cent.
Adding to Tuesday’s sell-off was the move by the People’s Bank of China to withdraw a net of 78 billion yuan (US$12 billion) through the open-market operation. Ma Jun, an adviser to the central bank, called for a shift of focus to job growth and inflation, with bubbles seen in stocks and properties, the 21st Century Business Herald reported.
Most major equity markets in Asia-Pacific also fell on Tuesday following a choppy session in US trading overnight, where a lawmaker said a fresh relief package was not likely to be approved until mid-March and a health official expressed concern about vaccination delays.
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