Hong Kong stocks tumble on China deflation concerns, reduced US rate cut expectations

Hong Kong stocks tumble on China deflation concerns, reduced US rate cut expectations

Hong Kong stocks slid from four-month highs, as China’s sluggish inflation data suggested weak domestic demand, dealing a further blow to investor sentiment after expectations of US interest rate cuts were smashed by surging consumer prices.

The Hang Seng Index fell 0.8 per cent to 17,009.49 at the noon break after closing at them highest since November 28. The Hang Seng Tech Index slid 1.3 per cent and the Shanghai Composite Index added 0.4 per cent.

Hong Kong’s property sector posted losses across the board on concerns borrowing costs will remain elevated for longer. New World Development dropped 5.6 per cent to HK$8.34 and Sun Hung Kai Properties slid 1.7 per cent to HK$74.05. Among other prominent decliners, NetEase shed 3.8 per cent to HK$152.80 and auto dealer Zhongsheng Group Holdings plunged 7 per cent to HK$14.28.

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China’s consumer prices rose 0.1 per cent from a year earlier in March, the statistics bureau said on Thursday, with the reading trailing the consensus estimate of a 0.4 per cent increase. Producer prices dropped for an 18th straight month.

“China still faces the risk of deflation, as domestic demand remains weak,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “The property sector slowdown continued in March. Fiscal spending has been weak so far this year. Export growth by itself cannot boost aggregate macro activities without help from more supportive fiscal policy.”

Investors have now shifted their focus to next week’s data dump including China’s second-quarter economic growth figures. Economic expansion probably slowed to 5 per cent in the first three months, moderating from a 5.2 per cent increase for the preceding three month, according to the consensus estimate of the economists polled by Bloomberg.

Sentiment also took a beating as investors adjusted their expectations of interest rate cuts by the US Federal Reserve. Markets expectations of a rate cut at the June meeting have now fallen to less than 20 per cent from 56 per cent before the US inflation data release. Inflation figures exceeded consensus expectations.

“We are pushing back our forecast of the first rate cut from June to July,” said Goldman Sachs analysts in a note. “We continue to expect subsequent cuts at a quarterly pace, which now implies two cuts this year versus the three we previously expected.”

Brite Semiconductor, which makes integrated circuits, jumped 161 per cent from its initial public offering price to 51.74 yuan in Shanghai.

Other major Asian markets fell across the board as investors reined in their US rate cut bets. Japan’s Nikkei 225 and Australia’s S&P/ASX 200 both slipped 0.4 per cent, while South Korea’s Kospi rose 0.1 per cent

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