HSI catches a cold as 'healthy bull' trips

Top News | 17 Jul 2020

Kevin Xu

The "healthy bull" in China's A-share market sneezed - and Hong Kong stocks caught a cold.

The Hang Seng Index gave up 510.89 points, or 2 percent, to close at 24,970 yesterday in step with the A-share market heading south as investors cashed out from the previous bull run amid growing Sino-US tensions.

The Shanghai Composite Index skidded by 4.50 percent to 3,210 and the Shenzhen Composite Index plunged 5.20 percent to 2,144.

The significant pullback in the A-share market had a negative impact on investment sentiment in Hong Kong, said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai.

"After the recent rally, some investors may prefer to lock in profit, and for the past few days you can see that some are concerned about the liquidity condition in A shares," Wen said.

The latest economic data - such as exports and GDP - are better than the market forecast, so investors are worried that mainland officials may not further loosen monetary policies, he added.

"In terms of valuation, I don't think the A-share market is in a bubble stage. I still think it is just a short-term consolidation or correction, but not the end of the bull market," Wen said. "I am not bearish at all, at least at this moment."

But Wen said whether the A-share market and Hong Kong stock market will see a rebound depends on the development of the pandemic and Sino-US relations.

The sharp rally over the past two weeks has drawn comparisons with the boom-bust market volatility five years ago - which was fueled by illegal margin lending - prompting state media to call for investor caution.

"The tragic lesson of abnormal stock market volatility in 2015 remains vivid, cautioning us that we must promote a healthy and prosperous stock market in a correct posture," the China Securities Journal has said in an editorial.

The editorial came a day after the China Securities Regulatory Commission published a list of 258 illegal margin lending platforms.

Geely Automobile dropped 11.98 percent to HK$15.58, the biggest blue-chip loser.

The "ATM" trio of Alibaba, Tencent and Meituan Dianping also retreated, but Wen said that may represent good bottom-fishing opportunities for these new economy stocks, especially if their share prices fall 3 percent to 5 percent further.

Alibaba declined 4.19 percent to HK$233.20, Tencent 5.52 percent to HK$513, and Meituan Dianping 7.73 percent to HK$185.10.

"The Hang Seng Index dropped below the 25,000 level, so it means that the selling pressure may be larger than what we previously expected," Wen said.

"I would suggest you control your exposure and look for mid-to-long term, rather than expecting new-economy stocks to rebound in a few days."

In contrast, MTR Corp Ltd rose 0.9 percent to HK$39.20, the best performer among blue-chip stocks.

Banks also rose. BOC Hong Kong went up 0.89 percent to HK$22.75, Hang Seng Bank 0.62 percent to HK$130.20 and Industrial and Commercial Bank of China 0.21 percent to HK$4.84. Shares of HSBC were flat at HK$37.2.

"Maybe some investors are doing what we call sector rotation," Wen said.

"So it's just driven by the money inflow and outflow, from what we call new-economy stocks to those stocks which can provide a relatively high dividend."

kevin.xu@singtaonewscorp.com

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