BYD, Alibaba drag Hong Kong stocks as new Covid-19 lockdowns seen hurting China’s manufacturing engine, consumer confidence

  • A government report on Wednesday may show manufacturing in China contracted for a second month in August, survey shows
  • New lockdowns in southern technology hub of Shenzhen follow recent curbs in mainland cities, including Sanya and Yiwu and Chengdu

Hong Kong stocks fell before a government report this week that may show a slowdown in Chinese manufacturing amid new lockdowns, adding to a sell-off sparked by the Federal Reserve’s hawkish stance on interest rates.

The Hang Seng Index slid 0.9 per cent to 19,843.71 at the local noon trading break, following a 0.7 per cent setback on Monday. The Tech Index slumped 1.7 per cent, while the Shanghai Composite Index dropped 0.6 per cent.

Alibaba Group Holding retreated 1 per cent to HK$94.25 and Tencent Holdings lost 1.1 per cent to HK$319.60. BYD, the electric-vehicle maker backed by Warren Buffett, slipped 0.6 per cent to HK$262.60 despite tripling its interim profits. WuXi Biologics and auto retailer Zhongsheng Group each sank more than 2 per cent each.

Manufacturing probably shrank in August with the official PMI gauge holding at 49.2 versus 49 in July, according to consensus among economists tracked by Bloomberg before a government report on Wednesday. Reading below 50 indicates contraction.

“There is pressure to stabilise the economy, with a rebound in domestic consumption and exports being challenged by possible recession in other major economies,” said Xue Wei, an analyst at Ping An Securities. “That is hardly appealing to stock investors.”

The Hang Seng Index has fallen 1.6 per cent this month, taking the setback this year to 15 per cent. The CSI 300 Index of onshore stocks has declined 2.6 per cent, adding to an 18 per cent misery in 2022. Both are headed for a second month of losses.

A rally in Hong Kong stocks last week on the back of the US-China audit deal has gone flat as traders reassess the impacts of repeated lockdowns, heatwave and a housing-market crisis on the Chinese economy.

Authorities in Shenzhen, China’s southern hub for technology companies, have placed six subdistricts under lockdown this week to control new Covid-19 outbreaks, including Huaqiangbei where the world’s largest electronics wholesale market is located. The restrictions are expected to last through Thursday.

American companies’ confidence on business conditions in China fell to a record low, with Covid-19 curbs posing the biggest challenge, according to an annual survey by the US-China Business Council. Respondents pointed to halted investments, lost profits and supply chain snarls among their grievances.

“Beijing’s zero-Covid policy is a much tighter straitjacket over the economy,” Yan Wang, a China strategist at Alpine Macro wrote in a report. “It constantly disrupts business activity. More importantly, it has dealt a heavy blow to the government’s credibility, which has further dampened consumer and business confidence.”

China’s biggest search-engine operator Baidu lost 1.4 per cent to HK$142.70 before the release of its report card later on Tuesday. Net income for the second quarter probably dropped 36 per cent from a year ago, according to analysts tracked by Bloomberg.

Industrial and Commercial Bank of China, Bank of China and China Construction Bank, the biggest state-controlled lenders, are also reporting their earnings. The stocks fell between 0.4 per cent and 0.8 per cent.

Elsewhere, major markets in Asia all rebounded from Monday’s sell-off, as Japan’s Nikkei 225 index rose more than 1 per cent, South Korea’s Kospi added 0.8 per cent and Australia’s S&P ASX 200 gained 0.6 per cent.

Author: Zhang Shidong, SCMP

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