Hong Kong’s stock market kicked off June with its biggest gain since the end of March, even though the United States is set to scrap its special trading status, as optimism rose that the Trump administration may not sanction Beijing for passing a controversial national security law for the city.
Investors took it as a positive sign that Trump, speaking on Friday, did not extend his threat of punitive actions beyond the city to mainland China. The Hang Seng Index rose 3.4 per cent to 23,732.52 for its biggest jump since March 25, while in mainland China, the Shanghai Composite Index rose 2.2 per cent to 2,915.43.
Analysts said the absence of specific sanctions against mainland China buoyed the markets on Monday.
“Trump’s press conference last Friday was long on criticism of China, but short on action,” Stephen Innes, chief global markets strategist at AxiCorp, said in a note on Monday. The markets have temporarily shelved the trade war escalation playbook and are being bullish, he added.
Other analysts were surprised with the day’s gains. “The market thinks that US-China relations have not deteriorated that badly, so it rebounded and recovered losses made over the past two weeks,” said Castor Pang, head of research at investment services firm Core Pacific-Yamaichi. “I’m surprised about the rapid gains.”
The Hang Seng Index was the worst performer in Asia in May, ending the month 6.8 per cent lower. And it might not be out of the woods yet. The passage of the national security law, as well as the 31st anniversary of the Tiananmen Square crackdown in Beijing, which has been marked annually in the special administrative region on June 4, loom large over Monday’s gains.
“But investors’ attention is on wider international issues, instead of the local situation,” Pang said, adding that any possible protests on Thursday, June 4, would not have a big impact on the outlook of Hong Kong stocks.
Forty-nine of the Hang Seng Index’s 50 constituent stocks rose on Monday, led by property and pharmaceutical shares. Country Garden rose 6.3 per cent and Sino Biopharmaceutical rose 6.7 per cent. Index heavyweight Tencent Holdings rose 4.5 per cent.
Car Inc, China’s largest rental car company, soared by 23 per cent, after state-owned BAIC Group signed a non-binding agreement in March to purchase 450 million of its shares, representing 21.3 per cent of its total issued capital, from UCAR Inc, which holds a substantial share in Car Inc, the company said.
The benchmark index might rise by a further 5 per cent to about 25,000, a level that will well reflect the current fundamentals, said Ken Chen, a strategist at KGI Securities in Shanghai. “The latest US sanctions are less harsh than was expected,” he said. “But concern about US-China tensions is still there, and that won’t be gone completely any time soon. The outlook for Hong Kong stocks hinges on when things will go back to normal and the economy will improve.”
Mainland investors have spent a combined HK$276.1 billion (US$35.6 billion) buying Hong Kong shares so far this year through the Stock Connect programme, the most since the comparable period in 2017, according to Bloomberg data.
Chen said the state could have bought some Hong Kong stocks on Monday, but it could not have been aggressive. “It’s not realistic – having much influence over the Hong Kong market through the Stock Connect programme, where there’s a daily quota on how much stocks can be bought,” he added.
The US’s stripping Hong Kong of some of its preferential trade treatment will have a limited impact on the city’s economy and the stock market, according to Citic Securities, China’s biggest publicly traded brokerage. The US accounts for about 10 per cent of Hong Kong’s total exports, while two-thirds of the weighting of the Hang Seng Index are dominated by mainland China-based companies with little exposure to businesses in the former British colony, said Yang Lingxiu, a strategist at the brokerage.
The listings of more Chinese technology behemoths in Hong Kong will help prop up the world’s fourth-largest stocks market, he said.
“There will probably be capital outflow pressure in the short term, with risk appetite among foreign investors for Chinese assets falling,” Yang said. “But the return of US-traded companies that are more representative of the new economy will help improve sentiment.”
Online gaming company NetEase and JD.com, China’s second-largest e-commerce retailer, are said to have already won approval from the Hong Kong exchange for secondary listings, and their stocks will start trading in the city this month.
On the mainland, technology and liquor stocks led the gains, with the Nasdaq-like ChiNext index rising by up 3.4 per cent. Shenzhen Everwin Precision Technology and Shenzhen Sunway both surged by the daily cap of 10 per cent.
Kweichow Moutai, the world’s most valuable liquor stock, surged to a record high of 1,419.5 yuan a share with a 3.9 per cent gain. Its market cap stood at 1.78 trillion yuan (US$249.5 billion).
Meanwhile, the Caixin manufacturing PMI data released on Monday also buoyed wider gains. It rebounded to a fourth-month high of 50.7 in May from April, showcasing further recovery in factory production, employment and new orders in China.
Core Pacific-Yamaichi’s Pang, however, said fluctuations would continue into the week. Trump’s comments against China would continue to fuel tension between the world’s two largest economies, he said.
“China’s economy has recovered further, as can be seen from recent data, although it will not be a V-shaped rebound, but edging up with fluctuations,” said Yan Kaiwen, analyst at China Fortune Securities.
The market will wait for any specific US measures over Hong Kong’s autonomy. “If such measures are announced, their impact on trade between Hong Kong and the US could be small, but its ripple effect on foreign investment and capital could be huge,” said Louis Wong, director at Phillip Capital Management.
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