Targets slashed as bourse seen diving to 2008 levels

Morgan Stanley has slashed targets for the Hang Seng Index, expecting the city's benchmark to drop to as low as 12,200 in the worst scenario, a level last seen during the 2008-2009 financial crisis.

The US bank has cut targets for key China equity gauges across scenarios, creating a wider dispersion between its bull, base, and bear cases as President Xi Jinping tightens his grip over the nation's power structure.

For the HSI, the bear and bull cases are 12,200 and 21,400 respectively while the base case has been cut to 16,900 from 19,400 points, according to the bank.

The target cuts reflect heightened volatility and higher compensation for taking risks after the Communist Party Congress, strategists including Laura Wang wrote in a note dated October 26.

This came as Hong Kong stocks extended a rebound yesterday, led by tech shares but mainland developers fell.

The HSI rose 0.7 percent yesterday to close at 15,427 points. Alibaba (9988) advanced 4.1 percent while JD.com (9618) surged 5.9 percent. Tencent (0700) edged up 0.8 percent.

Shares of Chinese real estate developers, however, dropped, with Country Garden (2007) down 8.3 percent, the biggest loser among blue chips.

Trading in shares of CIFI (0884) was halted yesterday, pending an announcement while its property management arm CIFI Ever Sunshine Services (1995) plunged 10.2 percent.

Meanwhile, a subsidiary of China Evergrande (3333) said it has earned creditors' approval to extend interest payments on its 8.2 billion yuan (HK$8.9 billion) worth of onshore bond by six months, which was due yesterday.

The volatility in the stock market came as profits at China's industrial firms fell 2.3 percent in the first nine months this year from a year earlier, after a 2.1 percent drop in the January-August period, according to data from the National Bureau of Statistics released yesterday.

The recovery in profits faces challenges as some industrial firms with high costs and declining profits have difficulties in production and operation, said Zhu Hong, senior NBS statistician, said in a statement.

For January-September, profits at state-owned companies rose 3.8 percent year on year while foreign, Hong Kong, Macau and Taiwan-invested enterprises and private firms both reported profit declines, down 9.3 percent and 8.1 percent, respectively.