Hong Kong stocks skid toward two-week low as Covid-19 warnings undermine recovery optimism

  • Mass screening in Shanghai and uneasiness about rising Hong Kong infections are hurting risk appetite
  • Official reports next week may show China’s economy cooled last quarter, while faster inflation to limit scope for further monetary easing

Hong Kong stocks dropped toward the lowest level in two weeks as traders trimmed positions before reports signalling a slowdown in China’s economic recovery. Concerns about a resurgence in Covid-19 cases in the city and mainland China eroded optimism.

The Hang Seng Index fell 0.4 per cent to 21,498.91 at the local noon trading break, the lowest since June 23. The Hang Seng Tech Index slid 1 per cent, while the Shanghai Composite Index climbed 0.5 per cent.

NetEase and Alibaba Health Information lost more than 2 per cent to HK$139 and HK$5.57 respectively, while Alibaba Group Holding slipped 0.6 per cent to HK$116.30. Pork processor WH Group slipped 0.2 per cent to HK$5.80, extending a 4 per cent loss a day earlier, as China pledged to stem pork-price increases.

The recent flare-up in virus infections is clouding the growth outlook with Shanghai conducting massive screening in most of the 16 districts. Shanghai reported 54 local cases on Wednesday, the most since late May, as the eastern province of Anhui locked down two counties to fight an outbreak.

In Hong Kong, health officials expressed concerns about growing new cases. Health authorities on Wednesday reported 2,815 infections. The number of Covid-19 patients in public hospitals had risen from 400 in June to 830, while those in a serious or critical condition had increased from 20 to 30, they added.

“For this recovery to be sustainable, consumer and business confidence need to stay buoyant,” said Tai Hui, a strategist at JPMorgan Asset Management. “One critical factor will be how the authorities handle the next round of outbreak. We do not expect China to abandon its current pandemic policy for now, but there is room to adjust the execution of quarantine measures to reduce the economic impact.”

China’s economy probably expanded 1.2 per cent in the second quarter, easing from a 4.8 per cent pace in the preceding three months, according to consensus among economists tracked by Bloomberg before a government report on July 15. The quarter will showcase the impact of two-month citywide lockdown in Shanghai, a key manufacturing and tech hub.

An inflation report on July 9 may show prices rose 2.4 per cent in June versus 2.1 per cent in May, limiting the scope for further monetary easing. Authorities this week warned traders against ramping up prices for pork, a key component in the inflation basket. Pork prices have risen 30 per cent this year.

On the mainland, electronics component maker Orbbec surged 35 per cent to 41.86 yuan on the first day of trading in Shanghai, while IT service provider China Etek Service & Technology gained 30 per cent to 59.69 yuan in Shenzhen.

Author: Zhang Shidong, SCMP

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