Hong Kong stocks suffered the biggest sell-off in nine months amid rising volatility as traders dumped richly-valued popular bets, brushing aside optimistic economic outlook and dov ish comments from the Federal Reserve. A government plan to raise stock trading fees spooked investors.
The Hang Seng Index slumped 3 per cent to 29,718.24 at the close on Wednesday, the steepest decline since May 22. The 30-day volatility of the index jumped to its highest level since August. The Shanghai Composite Index tumbled 2 per cent.
Mainland investors were net sellers of a record HK$20 billion (US$2.6 billion) of local shares through the Stock Connect’s southbound channel on Wednesday, according to the exchange data. That also marked also marking the first outflows since December 18.
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Hong Kong Exchanges and Clearing (HKEX) plunged almost 9 per cent, the most in five years. The bourse operator, a beneficiary of record surge in southbound inflows last quarter, started tumbling some seven minutes into Financial Secretary Paul Chan Mo-po’s Budget speech at 11am local time. Its slump contributed one-sixth to the Hang Seng Index’s loss, the biggest drag among component stocks.
“The increase in the stamp duty will have a huge impact on the market in the short term,” said Chen Hao, a strategist KGI Securities in Shanghai. “It will scare away some investors and slow down the southbound inflows, given the move will increase the trading costs.”
Chan proposed to raise stamp duty to 0.13 per cent from 0.1 per cent on stock trading, a first hike since 1993, a move that could boost stamp duty revenue by 16.5 per cent to HK$92 billion, he forecasts. This, however, could pressure trading costs by 6 to 15 per cent, squeeze trading volumes and crimping HKEX’s earnings, according to a Citigroup analysis cited by Bloomberg.
Meituan and Anta Sports Products, also among the biggest gainers in 2020, retreated by at least 4.8 per cent. Liquor distiller Kweichow Moutai and its peers crashed as the mainland markets’ most crowded trades further unravelled.
Fed Chairman Jerome Powell signalled that the US central bank was nowhere close to unwinding the policy support and said rising bond yields were a reflection of optimism on the economy rather than the inflation concerns. His comments, however, did little to buoy sentiment as Treasury yields climbed.
“The rise in yields will certainly give pause to rising stocks in Asia and other parts of the world as investors assess whether central banks will start to usher in a new interest rate regime and what a higher discount rate means for stocks,” said David Chao, a strategist at Invesco. “It’s possible that both US and Asian stocks could see a period of consolidation given the recent frothiness.” Stocks in major Asia-Pacific markets also took a beating, with losses on benchmarks in Australia, Japan and South Korea ranging from 0.9 per cent to 2.5 per cent.
In Hong Kong and mainland markets, investors are increasingly concerned about the risks of higher interest rates stunting a global asset rally built on years of unprecedented liquidity injections. That has triggered a shift into cyclical stocks from commodity producers to banks and property developers, at the expense of high-flying “bubble stocks” in the technology and consumer sectors.
“We expect the policy backdrop to remain incredibly accommodative,” said Michael Fredericks, head of income investing, multi-asset strategies and solutions at BlackRock. “Despite our more positive view on risk assets, we recognise that markets are no longer cheap, and volatility can quickly reappear. This keeps us measured in our overall risk taking.”
Hong Kong’s government also expects the city’s economy to expand by as much as 5.5 per cent this year against a record 6.1 per cent contraction in 2020, Chan said in his speech. The government will dole out coupons worth HK$5,000 each to permanent residents to spur consumption. Click here to follow a live blog on the Budget plans.
HKEX slid 8.8 per cent to HK$509 despite generating a record HK$11.5 billion of net profits in 2020. Investors will look for updates on the status of its CEO-designate Nicolas Aguzin, and clues on how the local bourse operator could sustain its growth momentum.
On the mainland, Kweichow Moutai tumbled 5.1 per cent to 2,189 yuan, bringing its decline to 16 per cent since traders returned from the Lunar New Year break on Thursday. Rivals Wuliangye Yibin shed 7 per cent to 293.08 yuan and Luzhou Laojiao plunged by the 10 per cent daily cap to 247.01 yuan.
Midea Group jumped 4.5 per cent to 95.02 yuan in Shenzhen, after the maker of household appliances unveiled the biggest-ever buy-back plan on the mainland’s market. The company plans to spend as much as 14 billion yuan (US$2.2 billion) buying up to 100 million of its own shares from the market, it said in an exchange filing.
Jiangsu Rongtai Industry and Wangli Security Products made their debuts on the mainland bourses, with both surging by the first-day limit of 44 per cent.
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