Hong Kong stocks slump as January bull run triggers caution and CNOOC exits MSCI indices while mainland funds taper purchases

Iris Ouyang
·3-min read

Hong Kong stocks slumped by the most in nearly eight weeks after a bullish start to the year drove the market into the overbought zone and mainland traders trimmed purchases. The worsening pandemic situation resulting in renewed lockdowns and tightened restrictions in China and overseas also hurt sentiment.

The Hang Seng Index slid 1.6 per cent to 29,447.85 on Friday, the biggest setback since a 2.1 per cent sell-off on November 30, according to Bloomberg data. CNOOC plunged after MSCI decided to delete it from some indices.

The Shanghai Composite Index dropped 0.4 per cent to 3,606.75, reducing the gain this week to 1.1 per cent.

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The Hang Seng Index had risen more than 10 per cent this year through Thursday when it surpassed the 30,000 level for the first time since May 2019. It still logged a 3.1 per cent gain for the week, aided by record inflows of mainland cash through the southbound channels of the Stock Connect programme.

“The stocks have risen quite a lot recently, when it broke 30,000 points and investors reached their short-term goals, they tend to take profit at a high level,” said Linus Yip, chief strategist at First Shanghai Securities. “Although funds usually have long-term arrangement [in their new portfolio], the market still will have consolidation when they stopped buying [at a high price].”

Markets retreated as the bull run encountered two immediate barriers. The surge in January has catapulted the market above 70 on the relative strength index, a technical threshold deemed as an “overbought” zone, which typically signals a trend reversal.

Six of the top 20 index stocks including Tencent Holdings, Meituan and Hong Kong Exchanges & Clearing (HKEX) flashed those warning signals as of Thursday, after prices hit their record-highs. Tencent and Meituan closed higher after swinging between gains and losses. HKEX fell 0.9 per cent to HK$510.50.

CNOOC plunged 5.6 per cent to HK$7.80, the most since November 30, after index compiler MSCI decided to delete the stock from its global and China indices. The company is a unit of China’s third-largest oil explorer China National Offshore Oil Corp, one of the Chinese companies sanctioned by the Trump administration.

CNOOC was also one of the top buying targets of mainland mutual funds on the Stock Connect scheme over the past two weeks, according to exchange data.

Xiaomi, like CNOOC a sanction target and a beneficiary of mainland fund buying, shed 3.7 per cent to HK$29.80. Alibaba, which owns the South China Morning Post, declined 3.1 per cent to HK$250.60.

Mainland funds have tempered their enthusiasm by scaling back net purchases of Hong Kong stocks on the southbound channels, according to stock exchange data. Net inflows shrank to HK$9.37 billion (US$1.2 billion) on Friday, slipping for a third day from a record HK$26.3 billion on Tuesday

Markets around the Asia-Pacific region weakened. The S&P/ASX 200 in Australia dropped 0.3 per cent and the Nikkei 225 eased 0.4 per cent. South Korea’s Kospi Index declined 0.6 per cent.

Concerns about Covid-19 infections remain high. China reported 103 new local cases on January 21, with outbreaks lingering in northern Hebei and Heilongjiang provinces. President Joe Biden, meanwhile, said the US could see another 100,000 fatalities over the next month.

New listings soared. In Shenzhen, Sinostar Cable more than tripled to 12.96 yuan, Sanyou Corp more than doubled to 53.76 yuan . Shanghai Hiuv New Materials also more than tripled to 218 yuan in Shanghai.

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