Hong Kong stocks drop on Alibaba Health’s profit warning while developers slide as debt default concerns revived

  • Alibaba Health warns of losses in the first-half to September, while BYD advances on approval for a plan to spin off chipmaking unit
  • Developers continue to drag the market on concerns about default risk after Modern Land (China) reneged on a dollar bond repayment

Hong Kong stocks declined for the first time in three days as investors looked to signals in the ongoing earnings season to gauge the strength of economic recovery from the pandemic.

The Hang Seng Index dropped 0.4 per cent to 26,028.94 at the noon break on Tuesday, retreating from near a six-week high. The Hang Seng Tech Index fell for a second day, losing 1.5 per cent. The Shanghai Composite Index slipped 0.1 per cent.

Alibaba Health Information slumped on profit warning and mainland developers extended losses on concern about a contagion risk after Modern Land (China) defaulted an offshore bond. BYD, the Chinese electric car maker backed by Warren Buffett, advanced on approval for a spin-off plan.

Caution prevailed before third-quarter earnings reports from some of the biggest Hang Seng stocks. Twelve of the 60 members are expected to report in the following week, including pork processor WH Group’s results on Tuesday. The index members probably posted a 2.4 per cent decline on average, according to Bloomberg data.

“Rising commodity prices, the regulatory crackdown and the expectations about the tapering in the US have weakened investors’ expectations for earnings,” HSBC Jintrust Fund Management said in a report. “But looking to 2022, all these factors will probably recede and Hong Kong stocks might be building a bottom in the fourth quarter.”

Alibaba Health tumbled 9.3 per cent to HK$11.18 after projecting as much as 320 million yuan (US$50.1 million) net loss in the first half to September 30. The stock was the worst performer on the Hang Seng Index.

China Resources Land and Longfor Group paced losses among property developers, falling 5.8 per cent and 4.7 per cent respectively. Modern Land failed to pay the principal and interest on a US$250 million bond due on October 25. Monday. Property stocks were broadly weaker following Beijing’s plan to introduce a property tax programme in more mainland cities.

BYD jumped 3.6 per cent to HK$313.80 after getting the approval from the Hong Kong stock exchange to spin off its semiconductor unit in Shenzhen.

Three debutants started trading on the mainland. China Resources Chemical Innovative Materials surged 37 per cent in Shenzhen. Sichuan Huiyu Pharmaceutical rose 1.7 per cent on Shanghai’s Star Market and Wayz Intelligent Manufacturing Technology dropped 8 per cent.

Major markets in Asia all reported early gains, led by an almost 2 per cent jump in Japan’s stock benchmark. The S&P 500 index rose to a record in overnight trading as Democrats moved closer to an agreement on President Biden’s multi-trillion dollar economic spending agenda, including a US$550 billion infrastructure bill.

Author: Zhang Shidong, SCMP

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