Hong Kong’s benchmark stock index plunges 3.77 per cent in morning session to breach 19,000 level
Originally published at the South China Morning Post on January 20, 2016.
Hong Kong’s benchmark stock index plunged below the 19,000 level at the end of Wednesday’s morning session after the local currency hit an eight-year low, while mainland China’s markets also fell.
The Hang Seng Index finished at 18,894.88, down 3.77 per cent or 740.93 points from Tuesday’s close, while the Hang Seng China Enterprises Index fell 4.89 per cent or 409.50 points to 7,968.30.
The Hong Kong dollar fell to 7.8218, continuing a five-day losing streak. It’s the lowest level since August 2007, during the global financial crisis.
“People are afraid that the capital will flow out from Hong Kong,” said Ivan Li, an equities analyst at Tung Shing Securities. “It’s a bit unexpected to me, given that the global market did pretty well today. I think that we will likely see some support at the current level.”
Li said that the drop in Hong Kong’s currency had triggered memories from the global financial crisis and the Asian financial crisis in 1998, and that speculators were questioning whether the Hong Kong dollar should be pegged to the US dollar.
Among the stocks with the highest turnover, CNOOC fell 5.99 per cent to HK$6.59, China Life fell 5.67 per cent to HK$19.62, HKEx shed 4.63 per cent to HK$168.9 and Ping An dropped 5.75 per cent to HK$34.45.
Local property developers are plunging, with Cheung Kong Property losing 5.823 per cent to HK$42.05, Henderson Land dropping 6.519 per cent to HK$40.15, New World Development declining 4.246 per cent to HK$6.54 and Hang Lung Group falling 3.111 per cent to HK$21.80.
The decline in Hong Kong stocks, particularly property developers, could also be attributed to investor fears over the US interest rate rise, Li said.
“There is now some concern that Hong Kong banks may follow suit and of course that will give a little more pressure to homeowners that pay mortgages,” Li said. “But I think it is quite oversold. So far, I’m still quite sceptical about whether a big storm is coming.”
Mainland markets also closed lower. The Shanghai Composite Index finished at 2,966.66, down 1.37 per cent or 41.08 points, and the CSI 300 – which tracks the large-caps listed in Shanghai and Shenzhen – fell 1.64 per cent or 52.80 points to 3,170.33.
The Shenzhen Composite Index fell 1.16 per cent or 21.97 points to 1,873.78, while the Nasdaq-style ChiNext dropped 1.68 per cent or 37.73 points to 2,203.96.
The People’s Bank of China set the yuan mid-price against the US dollar at 6.5578 on Wednesday morning, 18 basis points stronger than on Tuesday, when it set the mid-price 6 basis points weaker.
It set the mid-price against the euro weaker by 140 basis points to 7.1627, and for every 100 yen stronger by 50 basis points at 5.5834. The mid-price against the pound was set 653 basis points stronger at 9.2987.
Traders are allowed to trade up to 2 per cent either side of the mid-price for the day.
Two of the three major US indices closed slightly higher on Tuesday. The S&P 500 index was up 0.05 per cent or 1 point at 1,881.33. The Dow Jones Industrial Average closed up 0.17 per cent or 27.94 points at 16,016.02. The Nasdaq Composite finished down 0.26 per cent or 11.47 points at 4,476.95.