Stocks slide before Fed rate meeting while Goldman trims targets on Chinese stocks on property drag

On Jul 25, 2022 28

Stocks retreat before another expected rate increase this week in the US, and on concerns about China’s housing market. Photo: Handout

Goldman Sachs trims its earnings growth on MSCI China, index target for 2022 after earlier lowering China’s GDP forecast
The Fed is seen lifting its key rate by another 75 basis points later this week, with local property owners bracing for the first increase in prime rates

Hong Kong stocks fell to a one-week low as Goldman Sachs lowered its targets for Chinese stocks on property sector drag, while traders lightened positions before another expected rate increase in the US this week.

The Hang Seng Index retreated 0.8 per cent to 20,454.69 at local noon trading break, after advancing 1.5 per cent last week for the best weekly gain in July. The Tech Index slumped 2 per cent, while the Shanghai Composite Index declined 0.7 per cent.

Alibaba Group Holding, the owner of this newspaper, retreated 1.8 per cent to HK$100.30. Meituan declined 3 per cent to HK$186 while Tencent fell 2 per cent to HK$325. Auto stocks weakened as Geely lost 3.7 per cent to HK$15.82 and BYD Co dropped 1.8 per cent to HK$280.40.

“The risk-reward profile of Chinese onshore and offshore stocks in absolute terms is not yet attractive,” BCA Research said in a report to clients last week. “Home sales relapsed in the first two weeks of July after a one-off improvement in June, corroborating that the housing market’s fundamentals remain gloomy.”

Goldman Sachs cut its year-end target for MSCI China Index to 81 from 84, according to its July 21 report, citing challenges from the latest cracks in the housing market and mortgage boycott against stalled projects. That still implies a 16 per cent upside from Friday’s level.

The US bank earlier trimmed its per-share earnings growth estimate to zero from 4 per cent, versus a market consensus for an 8 per cent growth. It also earlier reduced China‘s economic growth forecast to 3.3 per cent from 4 per cent, after a poor second-quarter GDP report.

The market is also bracing for another round of tightening by the Federal Reserve with a second straight 75-basis-point hike at the July 27 meeting to combat soaring inflation. Aggressive tightening has stoked recession concerns in recent weeks, hurting risk appetite.

Hong Kong’s commercial banks could raise their prime lending rates for the first time in four years in response to the Fed’s rate hike, which would mean higher mortgage repayments for homebuyers.

Casinos and other businesses in Macau reopened on Saturday following a two-week closure. Still, Sands China lost 0.3 per cent to HK$17.80 and Wynn Macau retreated 1.4 per cent to HK$5.02 as rising new cases in the region and elsewhere kept optimism in check.

Property stocks advanced, limiting market losses, on speculation China will set up a rescue fund to support developers. The nation’s banking regulator last week said it will work with the central bank to sort out the crisis stemming from a boycott on mortgage payments involving stalled projects.

The Hang Seng Property Index gained 1.6 per cent, snapping a four-day losing streak. Country Garden and Longfor Group rallied by at least 5 per cent.

In Shanghai, InventisBio sank 16 per cent to 15.20 yuan on its first day of trading, while Jintuo Technology jumped 44 per cent to 9.43 yuan. Hangzhou Chuhuan Science & Technology soared 44 per cent to 33.06 yuan in Shenzhen.

Asian markets saw mixed performance on Monday. Japanese shares lost 0.7 to 0.7 per cent, while South Korean stocks gained 0.7 per cent. Australian equities were little changed.

Author: Cheryl Heng, SCMP