Hong Kong stocks slide by most in 5 weeks with regional sell-off on China lockdown and Fed tightening concerns

  • The Hang Seng Index is headed for the biggest drop since May 6 as a rebound in Covid-19 cases in Hong Kong, mainland China revives lockdown concerns
  • The Federal Reserve is expected to tighten again this week to cool US inflation at 40-year high, after raising twice this year in the policy lift off

Hong Kong stocks slumped by the most in five weeks after a rebound in Covid-19 cases in the city and across mainland China revived concerns about lockdown in the economy, while concerns about further monetary tightening in the US also crimped risk appetite.

The Hang Seng Index fell 2.8 per cent to 21,193.95 at the local noon trading break, heading for the worst drop since May 6. The Tech Index sank 3.7 per cent, while the Shanghai Composite Index lost 1.1 per cent.

Alibaba Group Holding, the owner of this newspaper, tumbled 5.9 per cent to HK$106.10, paring a 22 per cent advance last week. Meituan retreated 4.2 per cent to HK$192.70, while Tencent fell 4.6 per cent to HK$378.20. Other notable losers included Longfor Group and Country Garden, both sliding by more than 4 per cent.

Beijing tightened containment measures just a week after allowing dine-in services, with local authorities warning of an “explosive” Covid-19 outbreak connected to a popular bar. Shanghai separately ordered mass testing in half of the 16 districts to screen for any potential outbreak, while Hong Kong logged more than 800 cases for a second day on Sunday.

“The Chinese economy continues to face downside risks” under the zero-Covid policy, said Harmen Overdijk, chief investment officer at Leo Wealth in Hong Kong. China will likely impose new curbs in response to fresh outbreaks and “this dynamic will remain a drag on economic activity,” he added.

The risk of lockdowns is crimping appetite for Chinese stocks after a robust rally fanned by the reopening of Shanghai on June 1. Stocks have risen more than US$1 trillion in value in mainland and Hong Kong markets since the mid-March sell-off, as investors bet the worst has passed.

Regional markets also sold off in early trading on rate concerns as benchmarks in Japan, South Korea and Australia tumbled by 1.3 per cent to 3.2 per cent.

The Federal Reserve is expected to boost the fed fund rate by at least half-a-point this week to control inflation at 40-year high. The Fed has lifted its key rate twice in the lift-off, boosting it by 25 basis points in March and 50 basis points in May.

Entering the cycle of interest rate rises, Hong Kong will continue to tackle challenges of global capital flows for the next few years, said Eddie Yue, chief executive of Hong Kong Monetary Authority. Geopolitical tensions are also expected to bring market volatility, he added.

In today’s trading, 65 of the 69 Hang Seng Index members dropped. The index saw four new additions on Monday including chip maker Semiconductor Manufacturing International Corporation, which was little changed. Apple component supplier AAC Technologies, fell 3.1 per cent to HK$17.20 as it exited the benchmark.

Meanwhile, traders are keeping a close eye on the People’s Bank of China’s decision on its one-year medium-term lending facility rate this Wednesday, after holding it unchanged for four months.

Other key China economic reports to be released this week include retail sales, industrial production, unemployment rates and property investment. An official report on new home prices is due on Thursday.

Author: Cheryl Heng, SCMP

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