Hong Kong and mainland markets slid, as concerns mount that some stocks may be overheated and the pace of economic recovery in the US – the world’s largest economy – is threatened by a surge in Covid-19 cases.
The Hang Seng Index fell 1.1 per cent to 25,477.89 on Tuesday, with losses led by information technology and communication services stocks.
A rally of late, including in new economy stocks, propelled the Hang Seng into a bull market last week, and Alan Li, portfolio manager at Atta Capital, said the declines Tuesday were due to profit taking.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
High-flying Geely Automobile fell 5 per cent to HK$18.10, after rising in seven of the previous eight sessions. Investors have been giving China auto stocks a fresh look as the latest data from June signalled recovering sales after the worst of the coronavirus and the sector remains comparatively cheap.
Casino stocks surged as Guangdong province lifted 14-day quarantine restrictions that have contributed to the empty baccarat and other tables in glittering Macau, the world’s biggest gambling town.
Galaxy Entertainment advanced 6.1 per cent to HK$53.95, after shooting up as much as 11.1 per cent, while Sands China jumped as much as 8.9 per cent before closing ahead by 5 per cent at HK$32.35.
Some of this year’s strong performers sank, as traders scrambled to take profits.
Tencent fell about 3 per cent to HK$525, while Alibaba dropped 5.5 per cent to HK$240.40, its third straight session of losses after it shooting up 10 per cent last Thursday. The pair were the most traded stocks in Hong Kong.
Another recent big winner, Meituan Dianping, China’s largest on-demand food delivery service, fell as much as 10 per cent before closing down 4.3 per cent at HK$197.10.
Investors in Semiconductor Manufacturing International Corp. had a scare. It plunged as much as 7.4 per cent before ending with only a 0.4 per cent loss, at HK$41.80. SMIC has seen its shares surge more than 100 per cent over the past 30 days, as it prepares to list A shares on the mainland.
Meanwhile, the Shanghai Composite Index finished down 0.8 per cent at 3,414.62, but still has gained in nine of the past 11 trading sessions. Property stocks led the decline. Popular Kweichow Moutai, the world’s most valuable liquor company, fell 1.1 per cent to 1,762 yuan, making it the biggest contributor to the benchmark’s decline.
The index has risen nearly 17 per cent in the past 30 days, fanning fears grow that stocks in China are rising too much, too quickly. Foreign investors sold a net 17.4 billion yuan of China stocks on Tuesday, Bloomberg reported, a new record.
The Shenzhen Composite Index finished down 0.9 per cent to 2,309.57, after slipping as much as 2.2 per cent. It has risen in nine of the past 11 trading sessions, including a 3.5 per cent jump Monday.
China markets have been steaming ahead toward the US$10 trillion valuation mark last seen in 2015, when stocks collapsed, wiping out more than US$5.2 trillion in market capitalisation.
The meltdown of 2015 is very much on the minds of Chinese authorities, who are balancing the benefits and risks of investor enthusiasm in the country’s stock markets. Borrowing to buy stocks is at a five-year high, although it is less than half of what it was in the 2015 market rout.
Investor sentiment has been buoyed by a stream of data that has show China’s economy is steadily recovering.
On Tuesday, China’s trade data showed exports and imports recovering in June from the coronavirus lockdown, and beating estimates. Exports rose by 0.5 per cent in June year-on-year, versus a minus 3.3 per cent decline in May. Imports rose by 2.7 per cent year-on-year, compared with minus 16.7 per cent in May.
“Looking forward, we expect the Chinese economy to stay in the recovery tranche, underpinned by ongoing work resumption and policy easing,” said Michelle Qi, chief investment officer of equities at Eastspring Investments. “ … Further market upside would come from continued improvement in economy and corporate earnings.” Potential headwinds, she said, include the virus and its impact on demand for China’s exports.
Meanwhile, the Hang Seng Index has been boosted by overall optimism, even in the face of Beijing’s tightening grip, a rise in locally transmitted Covid-19 cases leading to tough new restrictions and a stubborn recession. Investors are excited by the rush of new listings in the city and the money pouring in from the mainland to snap up stocks.
Investors are also watching souring relations between Beijing and Washington, as the US rejected China’s claims over the South China Sea and China sanctions, the latest tit-for-tat between the world’s two largest economies.
Other stocks of note in Hong Kong include Chinese biotech Beigene, which shot up 12.7 per cent on plans to raise US$2.1 billion through placing 145.8 million new shares to investors, including California-based pharmaceutical giant Amgen and New York-based hedge fund Baker Bros Advisors.
One stock debuted in the mainland.
Niutech Environment Technology Corp, a recycler of scrap tires and plastic waste, soared 240 per cent on the Star board, where there are no limits on gains in the first week of trading.
Purchase the 120+ page China Internet Report 2020 Pro Edition, brought to you by SCMP Research, and enjoy a 30% discount (original price US$400). The report includes deep-dive analysis, trends, and case studies on the 10 most important internet sectors. Now in its 3rd year, this go-to source for understanding China tech also comes with exclusive access to 6+ webinars with C-level executives, including Charles Li, CEO of HKEX, James Peng, CEO/founder of Pony.ai, and senior executives from Alibaba, Huawei, Kuaishou, Pinduoduo, and more. Offer valid until 31 August 2020. To purchase, please click here.
More from South China Morning Post:
- Chinese investors borrow most money in five years to buy stocks as bull market charges on
- Hong Kong’s Hang Seng Index went from bear to bull in just over three months. What stock investors need to know now