Hong Kong stocks rebound as sell-off that erased most of US$945 billion post-pandemic recovery attracts buyers

  • The Hang Seng Index’s 14-day relative strength index fell below 30 on Monday, a threshold that signals stocks are oversold
  • The benchmark slipped to the lowest level since late March 2020 on Monday, erasing almost all of the recovery from the depth of pandemic

Hong Kong stocks rebounded as traders deemed a sell-off this week that drove the market to near a 21-month low was excessive.

The Hang Seng Index rose 0.5 per cent to 22,865.96 at the local noon trading break on Tuesday. It closed on Monday at the lowest level since late March 2020. ENN Energy and Xinyi Glass led gainers, surging by at least 5.7 per cent. China’s Shanghai Composite Index advanced 0.4 per cent.

Sentiment improved after China’s major financial newspapers reported that commercial banks will extend the cut in the loan prime rate as early as the first quarter in 2022 to bolster growth, citing analysts. The one-year LPR was cut to 3.8 per cent from 3.85 per cent on Monday, the first reduction since April 2020.

The Hang Seng Index’s 14-day relative strength indicator fell below 30 on Monday, a threshold that traders rely on as a signal stocks are oversold and poised to rebound.

“Hong Kong stocks have already dropped to a level that matches the three-year average in valuation,” said Guo Yuantao, an analyst at China Merchants Securities. “We expect the stocks to bottom out in 2022 and start to rise [amid further policy easing].”

The Hang Seng Index rose as much as 43 per cent from the pandemic low set in March 2020 when it peaked in February this year. The retreat from there has erased US$945 billion of market value in its wake.

The index’s 16 per cent slump this year makes it the worst performer among major global stock indices, and set to hand investors their first back-to-back annual losses since 2002. The members are now trading at 11.6 times projected earnings, the second cheapest after Brazil, according to Bloomberg data.

A gauge of Chinese technology stocks trading in the city wavered after Beijing this week meted out a hefty fine on a top live-streamer for tax evasion.

The Hang Seng Tech Index rose 0.4 per cent, reversing an intraday loss of as much as 0.8 per cent, after e-commerce influencer Huang Wei, also known as Viya online, was fined 1.34 billion yuan (US$210 million), signalling Beijing’s regulatory crackdown is far from over.

Live-streaming platform operator Bilibili tumbled 6.4 per cent while short-video platform operator Kuaishou Technology lost 1.5 per cent. Alibaba Group sank 1.5 per cent.

Overseas traders halted a two-day selling of onshore stocks. The market earlier weakened as authorities started to clean up stock accounts opened by mainland investors buying yuan-denominated shares via the Stock Connect link to flush out “fake foreign investors” that take advantage of lower funding costs in Hong Kong.

Markets in Asia-Pacific rose on Tuesday with Japanese equities surging by more than 2 per cent. Traders looked past the overnight sell-off in US stock to assess the risk of the Omicron variant to the reopening of the economy.

Author: Zhang Shidong, SCMP

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