Hong Kong stocks slide as China industrial profit data rekindles recovery concerns

27/06/2024

Hong Kong stocks slumped on Thursday after data showed a slowdown in industrial profits for Chinese companies, adding to concerns about corporate performance in the world’s second largest economy and sending the benchmark to near two month lows.

The Hang Seng Index fell 1.8 per cent to 17,767.65 as of 11.20am local time, hovering around lows not seen since April 30. The Hang Seng Tech Index slid 2.1 per cent and the Shanghai Composite Index retreated 0.7 per cent.

Sentiment also took a pounding after the Japanese yen weakened to its lowest level against the US dollar since 1986, which may spur a bout of competitive currency devaluation in the Asia-Pacific region and trigger capital outflows. The dollar index approached its highest in the year.

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Sell-offs were broad-based, as all but five stocks in the city’s 82-member benchmark dropped. Profit for Chinese industrial companies increased 0.7 per cent from a year earlier in May, decelerating from a 4 per cent gain in the previous month, the statistics bureau said on Thursday.

“There’s a setback in the economic recovery and the momentum seems to have weakened, with the property market still in the downtrend,” said Yao Liqi, an analyst at Shenwan Hongyuan Group. “Sentiment is weak and the correction may continue.”

Meanwhile, Beijing’s measures to shore up the property market, including a cut in the down payment ratio and the mortgage rates, drew a tame reaction from investors with analysts at Japanese investment bank Nomura saying the relaxation came in “slower than expected”. Beijing is the last among China’s four first-tier cities to roll out the supportive policies in a follow-through with a nationwide rescue package unveiled last month.

“Beijing did not make major adjustments to the local home-purchase restrictions – unlike Shanghai – indicating Beijing government’s more conservative stance on relaxing policy for the local property market,” Nomura Holdings said in a note.

Meanwhile, the property sector’s focus remains on developers’ shrinking market capitalisation. A clutch of Hong Kong-listed Chinese property developers, including Soho China and Shimao Group Holdings, risk losing the backing of mainland investors, as their valuation falls below the threshold limit for inclusion in the Stock Connect programme.

The Hang Seng Index has lost about a third of the gains made from a January low, as the latest set of Chinese economic data underwhelmed and amid uncertainty around the timing of a potential interest rate cut by the US Federal Reserve. Much hope is pinned around next month’s third plenary session when the elite of China’s ruling Communist Party will meet to decide on long-term policies and reforms.

Among the leading decliners, smartphone maker Xiaomi dropped 6.2 per cent to HK$16.72 and packaged-water maker Nongfu Spring slumped 5.9 per cent to HK$37.70. New World Development slipped 0.8 per cent to HK$7.17 after selling a stake in a property project to its parent for 1.44 billion yuan (US$198.2 million) to lower debt.

Other major Asian markets were broadly weak. Japan’s Nikkei 225 and Australia’s S&P/ASX 200 both slipped 1.2 per cent, while South Korea’s Kospi retreated 0.5 per cent.

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