HK stock rally buckles as protests worsen

  • Markets
  • Tuesday, 12 Nov 2019

Tough time: A pedestrian stands in front of an electronic ticker board and a screen displaying stock figures outside the Hong Kong Stock Exchange. Concern is rising that Hong Kong’s bleak economic situation has yet to fully filter through to its stocks. — Bloomberg

SHANGHAI: Hong Kong stocks fell the most since late August as protests escalated after police shot and wounded a protester yesterday morning.

The Hang Seng Index dropped as much as 2.5%, with local landlords plummeting. Police fired tear gas in the centre of the business district to disperse chanting office workers who were blocking roads. Signs that optimism over a potential US-China trade deal has been overdone added to the bearish sentiment. The MSCI Hong Kong Index slumped 3.1% and the local dollar weakened.

The abrupt drop in the city’s stocks – by far the worst in Asia – follows a half trillion dollar rally that drove a measure of buying momentum to its highest level in almost nine months and pushed the Hang Seng Index above its 200-day moving average.

The shooting came as protesters called for a city-wide strike following the death of a student who fell from a parking garage amid a police dispersal operation. The city’s railway operator suspended parts of some lines amid mass vandalism and universities cancelled classes. Police had earlier said two protesters were shot.

“Hong Kong safety is now a big question, ” said Jackson Wong, asset management director at Amber Hill Capital. “Some people are worried that today’s (yesterday’s) event would escalate the protest. There’s also conflicting messages from the US and China over the trade deal. Last week people were pricing in a successful deal.”

The local dollar slid 0.05% to 7.82337 per greenback after its best week since mid-September. That’s even as a gauge tracking the demand for cash jumped to the highest level since early 2016. The currency’s three-month forward points surged to as high as 46.83, surpassing the intraday peak of 46.09 seen in mid-August.

Concern is also rising that Hong Kong’s bleak economic situation has yet to fully filter through to its stocks. Faced with its worst business outlook since the 2008 financial crisis and a plunge into recession, a chill may be coming for Hong Kong’s corporate earnings.

He Qi, a fund manager with Huatai Pinebridge Fund Management Co who called the rally in mid-August, said he’s preparing to sell.

“Hong Kong’s gains are just part of a global risk-on rally amid a flood of liquidity, and the short-term gains are way too strong, ” said He.

While President Donald Trump said late last week that trade talks with China were moving along “very nicely, ” he added that reports about how much the US was ready to roll back tariffs on China were “incorrect.” Those reports had helped fuel the risk-on rally that sent a gauge of global stocks to its highest level since early 2018.

China’s largest brokerage Citic Securities Co earlier this month trimmed its earnings growth forecast on the Hang Seng gauge to 4% this year from a previous estimate of as much as 8%. — Bloomberg

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