Hong Kong stocks slide by most in 5 weeks as Alibaba, tech peers sink on China lockdown concerns and Fed tightening path

·3-min read

Hong Kong stocks slumped by the most in five weeks after a rebound in Covid-19 cases in the city and across mainland China revived lockdown fears while concerns about further US monetary tightening also crimped risk appetite.

The Hang Seng Index tumbled 3.4 per cent to 21,067.58 at the close of Monday trading, suffering its worst drop since May 6. The Tech Index sank 4.7 per cent, while the Shanghai Composite Index lost 0.9 per cent.

Alibaba Group Holding, the owner of this newspaper, tumbled 8 per cent to HK$103.80, paring a 22 per cent advance last week. Meituan retreated 6.5 per cent to HK$188.20, while Tencent fell 4.9 per cent to HK$377. Other notable losers included Xinyi Solar and Country Garden, both sliding by more than 6 per cent.

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Beijing tightened containment measures just a week after allowing dine-in services, with local authorities warning of an “explosive” Covid-19 outbreak connected to a popular bar. Shanghai separately ordered mass testing in half of the 16 districts to screen for any potential outbreak, while Hong Kong logged more than 800 cases for a second day on Sunday.

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“The Chinese economy continues to face downside risks” under the zero-Covid policy, said Harmen Overdijk, chief investment officer at Leo Wealth in Hong Kong. China will likely impose new curbs in response to fresh outbreaks and “this dynamic will remain a drag on economic activity,” he added.

The risk of lockdowns is crimping appetite for Chinese stocks after a robust rally fanned by the reopening of Shanghai on June 1. Stocks have risen more than US$1 trillion in value in mainland and Hong Kong markets since the mid-March sell-off, as investors bet the worst has passed.

Regional markets also sold off on rate concerns as benchmarks in Japan, South Korea and Australia tumbled by 1.3 per cent to 3.5 per cent.

The Federal Reserve is expected to boost the fed fund rate by at least half-a-point this week to control inflation, according to consensus compiled by Bloomberg. Consumer prices rose 8.6 per cent in May, the most since 1981, after easing to 6.3 per cent in April. The Fed has lifted its key rate twice in the lift-off, boosting it by 25 basis points in March and 50 basis points in May.

Entering the cycle of interest-rate rises, Hong Kong will continue to tackle challenges of global capital flows for the next few years, said Eddie Yue, chief executive of Hong Kong Monetary Authority. Geopolitical tensions are also expected to bring market volatility, he added.

SMIC, Orient Overseas included in Hang Seng Index revamp while AAC Tech is removed

In today’s trading, 64 of the 69 Hang Seng Index members dropped. Four stocks were added to the benchmark on Monday, including chip maker Semiconductor Manufacturing International Corporation. Apple component supplier AAC Technologies fell 3.1 per cent to HK$17.20 as it exited the benchmark.

Traders are keeping a close eye on the People’s Bank of China’s decision on its one-year medium-term lending facility rate this Wednesday, after holding it unchanged for four months.

Other key China economic reports to be released this week include retail sales, industrial production, unemployment rates and property investment. An official report on new home prices is due on Thursday.

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