Hong Kong, China stock rally cools on US election suspense, global Covid-19 cases spike

Zhang Shidong
·4-min read

Hong Kong stocks consolidated near a four-month high as traders waited for the outcome of the US presidential election with challenger Joe Biden gaining momentum in swing states. A jump in global Covid-19 infections and slowing sales from Alibaba Group Holding tempered sentiment.

The Hang Seng Index added 0.1 per cent to 25,712.97 at the close, after fluctuating between gains and losses more than 10 times. Xiaomi and WH Group emerged as the biggest gainers, while Alibaba and CK Hutchison Holdings led losers.

The Hong Kong stock benchmark completed the best weekly gain since early June with a 6.7 per cent gain, with most of the contribution coming from a 3.3 per cent rally on Thursday. The Shanghai Composite Index dropped 0.2 per cent, paring this week’s advance to 2.7 per cent.

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Losses on futures linked to US equities ranged from 0.3 to 0.7 per cent, as the presidential election has not produced a winner amid vote-counting in key swing states showing Biden having an upper hand. The result may still take days or even weeks as President Donald Trump made legal challenges in Nevada, Michigan, Pennsylvania and Georgia. Biden needs one more state to claim the White House, according to some projections.

“A little bit of risk uncertainty is hitting the markets,” said Stephen Innes, a strategist at Axi. “Keep an eye on data to help determine the next impulse from a fundamental perspective once election risk premiums have finished repricing and as the market waits for Covid-19 vaccine trial data, which has been lagging.”

The yuan weakened 0.2 per cent after hitting a two-year high against the dollar. China’s central bank expects the currency use to increase alongside the state efforts to open the local markets to foreign investors, Bloomberg reported, citing governor Yi Gang.

Markets in Asia held onto the gains that propelled the MSCI Asia-Pacific Index to the highest since February 2018. The Federal Reserve kept interest rates near zero and made no change to asset purchases in its policy meeting, and stressed that more monetary and fiscal measures are needed to bolster growth.

Risk assets rallied on Thursday amid signs Biden was edging closer to the 270 votes needed to win the presidency. Still, that election could produce a divided legislature that is less likely to pass a fresh trillion-dollar stimulus package, which would cool optimism among market bulls.

Betting markets show Biden is likely to become the 46th president, with the Republicans maintaining control of the Senate, according to BCA Research. Such a balance of power could produce less fiscal stimulus than any of the other possible outcomes that were in play earlier this week, it added.

“Investors should remain overweight global equities versus bonds,” it said in a report. “Be prepared to increase exposure to value stocks when clearer evidence emerges that the latest wave of the pandemic is cresting.”

On the pandemic watch, the US became the first country to top 100,000 coronavirus infections in a single day. France warned of a violent second wave, as it joined European countries including Italy and Poland in reporting new highs in daily infections.

In Hong Kong, Alibaba, the owner of the South China Morning Post, fell 4.3 per cent to HK$282. While quarterly revenue grew by 30 per cent and exceeded analysts’ estimates, it was also the slowest pace on record. Its American depositary receipts slid 2.7 per cent in overnight trading in New York.

Makers of coronary stents led the pack of decliners on the mainland after a national procurement by the government brought down average prices of the products by more than 90 per cent. Lepu Medical Technology Beijing lost 3.5 per cent to 29.30 yuan in Shenzhen.

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