Hong Kong stocks rally as China retail sales data hints at recovering consumer confidence

17/06/2024

China's industrial production slowed to 5.6 per cent in May from 6.7 per cent in April, but retail sales in May posted a 3.7 per cent increase, higher than April's 2.3 per cent

Hong Kong stocks rose on Monday after China's retail data provided a bright spot in an otherwise uninspiring set of economic numbers, although caution prevailed as heightened trade tensions with the European Union (EU) kept investors on edge.

The Hang Seng Index edged up 0.2 per cent to 17,978.30 at the noon trading break, following the previous week's loss of 2.3 per cent. The Hang Seng Tech Index inched up 0.12 per cent while the Shanghai Composite Index dropped 0.51 per cent.

China's industrial production slowed to 5.6 per cent in May from 6.7 per cent in April, while property investment from January to May tumbled 10 per cent year-on-year compared with the 9.8 per cent drop in the first four months, according to the statistics bureau. Retail sales in May was a bright spot with a 3.7 per cent increase, higher than April's 2.3 per cent.

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Retail stocks became front runners among the benchmark constituents. Noodle maker Tingyi led the gains with shares rising 3.7 per cent to HK$9.70 and China Mengniu Dairy added 2.4 per cent to HK$13.06, after rising as much as 3.2 per cent.

"Better retail sales figures point to recovering consumer confidence, which is a vital component in Chinas efforts to gain economic momentum," said Tim Waterer, chief market analyst at KCM Trade. "Industrial Production numbers were disappointing and were a reminder that China's road to recovery still looks bumpy."

hong kong stocks rally as china retail sales data hints at recovering consumer confidence

A woman jogs past China's central bank, or the People's Bank of China in Beijing, Tuesday, Feb. 20, 2024. Photo: AP

The People's Bank of China kept the interest rate on the one-year medium-term lending facility unchanged at 2.50%, quashing hopes of monetary easing as the world's second-largest economy grappled with a multi-year property crisis. Chinese developer Longfor Group Holdings slipped 2.3 per cent to HK$12.08.

"While China has room to cut interest rates to tackle the economic and low inflation challenges, it has opted for a status quo for other policy goals, such as capital outflows and exchange rate stability," said Gary Ng, senior economist at Natixis. "The current policy trajectory may not offer much help to market confidence unless we see lower rates and more demand-side fiscal support."

China's first ranking Vice-Premier Ding Xuexiang will visit the EU on a five-day visit starting on Monday to deepen the green partnership with the bloc, following the EU's announcement last week that it intends to levy extra duties on imported electric vehicles (EV) made in China from July 4.

Other major gainers included BYD Electronics, which saw shares jump 6.3 per cent to HK$39.55. The handset assembler is expected to benefit from its major client Apple's recent artificial intelligence push, according to Hua Chuang Securities' research report on Friday, with net profit reaching 5.07 billion yuan this year. The brokerage has a target price of HK$49.40 for the stock, implying an upside of 25 per cent from the current levels.

Other major Asian markets were broadly lower. Japan's Nikkei 225 lost 2.1 per cent and South Korea's Kospi slid 0.4 per cent, while Australia's S&P/ASX 200 eased 0.1 per cent.

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