Hong Kong stocks dip after China data shows contraction, developers rally on mortgage rate cut

  • Hang Seng Index drops 0.3 per cent in morning trading, erasing an intraday gain of as much as 1.4 per cent
  • Both Chinese industrial production and retail sales contracted last month

Hong Kong stocks dropped on Monday afternoon, extending last week’s losses, after official data showed that Chinese economic activity contracted in April, offsetting a cut in mortgage rates and an announcement about the phased lifting of Shanghai’s lockdown.

The Hang Seng Index fell 0.3 per cent to 19,825.12 at the noon break after a 0.5 per cent decline last week. The Hang Seng Tech Index lost 0.5 per cent. The city’s currency weakened to as low as 7.85 against the US dollar, hitting a mark for the fifth day that will prompt more intervention from the Hong Kong government, which will defend the local dollar’s peg to the US dollar to ward off capital flight.

In China, the Shanghai Composite Index lost 0.5 per cent.

Meituan and China Resources Beer were the biggest drags on the Hang Seng Index, falling by more than 2 per cent. Country Garden Holdings, on the other hand, rallied by 1.4 per cent after Chinese regulators cut mortgage rates for first-time homebuyers over the weekend.

Local stocks surrendered gains of as much as 1.4 per cent after official data – released on Monday morning after markets opened – indicated that both Chinese industrial production and retail sales contracted last month, underscoring the damage that lockdowns and China’s zero-Covid policy have inflicted on its economy.

Industrial output dropped 2.9 per cent from a year earlier and retail sales slumped 11.1 per cent, according to the data released by the statistics bureau. Fixed-asset investments were the only bright spot in the economy, rising by 6.8 per cent because of increased government spending on infrastructure projects.

“The impact and the blow inflected by the pandemic to the economy will be reflected by the second-quarter economic data,” said Bruce Pang, a strategist at China Renaissance Holdings in Hong Kong. “The downside pressure on the economy will be increasing in the following one or two months, unless there’s more scientific classification of areas with medium and high risk, and an orderly push to resume production.”

Shanghai will ease its almost two-month lockdown in phases starting June 1 and aim to fully return to normal in the latter part of next month, the local government said on Monday. On Sunday, the city’s new infections dropped below 1,000 for the first time since March 24, official data shows.

A move by the central bank over the weekend to cut the mortgage rate for first-time homebuyers failed to generate buying interest. The People’s Bank of China lowered the borrowing cost by 20 basis points in an effort to reverse a decline in home sales across the country.

“We believe the physical market will remain weak in the second quarter and the mortgage rate cut is not sufficient to stimulate fundamental demand,” said Stephen Cheung, an analyst at Jefferies in Hong Kong.

Bailing out the troubled property market is among investors’ prerequisites before they can become more upbeat about stocks. Other requirements include interest rate cuts and the easing of a crackdown on the technology sector and Beijing’s zero-Covid approach.

Morgan Stanley said recently that Hong Kong stocks will probably lose out to China’s onshore shares for a fourth straight year in 2022, with yuan-traded stock set to benefit more from Beijing’s policy loosening and a flurry of government drives, ranging from infrastructure investment to carbon neutrality and data security.

Author: Zhang Shidong, SCMP

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