Hong Kong Stock Rout Deepens With Pressure Building on Currency
(Bloomberg) -- The selloff in Hong Kong markets just can’t seem to abate, with the city’s stocks and currency sinking to multi-year lows on Tuesday.
Fears over the omicron coronavirus variant, a bad set of earnings and Beijing’s deepening crackdown on the car-hailing sector all combined to send the benchmark Hang Seng Index down to its lowest level since last September. The Hong Kong dollar fell into the weak half of its trading band for the first time since 2019.
“There may be signs of capital outflows from the city,” said Banny Lam, head of research at CEB International Investment Corp. “Fed tapering may contract worldwide liquidity, which would push up the Hibor and affect stock market performance.”
Hong Kong’s equity market has seen about $1.7 trillion wiped in value since its February peak as Xi Jinping’s crackdown on private enterprises and contagion fears from developer China Evergrande Group’s debt crisis hammered some of the city’s most valuable stocks. While there have been rebounds, nervous traders have been just as quick to dump assets.
Tuesday’s losses came amid a wider Asia selloff following a report that quoted Moderna Inc. CEO Stephane Bancel as saying that existing Covid-19 vaccines will be less effective at tackling the omicron variant. Separately, China will prevent “disorderly expansion” of capital in the transportation sector, and punish those who offer abnormally low prices and use big data to cheat consumers, according to guidelines issued by multiple government agencies.
The rout saw the Hang Seng China Enterprises Index lose 1.5% to finish at its weakest level since May 2016. The gauge of some of the biggest Hong Kong-listed Chinese stocks is now down 22% so far this year, the most among more than 90 global stock indexes tracked by Bloomberg.
The omicron strain may elevate health risks and in turn affect the timeline of Hong Kong’s border reopening with China, Lam of CEB International added. The city reported its third imported omicron infection Monday.
The Hong Kong dollar declined to as low as 7.8020 per greenback, while the one-month Hibor, a key gauge of interbank funding costs, rose to the highest level since April. Selling pressure on Hong Kong’s currency intensified this month as the greenback rallied on bets that the Federal Reserve will tighten policy sooner due to robust U.S. growth data.
The drop beyond 7.8 puts the Hong Kong dollar closer to the weak end of its allowed trading range against the greenback, a breach of which will prompt the Hong Kong Monetary Authority to intervene to maintain its peg. The last episode of frequent intervention by the HKMA at the weak end of the trading band took place in 2019.
Shares of Meituan, which has the highest weighting on the HSCEI gauge, fell 2.9% on Tuesday, extending a losing streak to a third day. The Chinese food-delivery behemoth on Friday reported a wider net loss for the September quarter. China Gas Holdings Ltd. sank 20% after net income for the six months ended September slumped.
While a number of global brokers such as Goldman Sachs Group Inc. and HSBC Holdings Plc. have turned positive on Chinese stocks, Morgan Stanley remains cautious.
It has a December 2022 base-case price target for the Hang Seng China Enterprises Index of 9,000 points, which implies an upside of less than 8% from the current level and would still be down 26% from this year’s high.
“This year’s regulatory reset is still leading to a medium to longer term re-assessment of business models and profitability for key sectors such as Internet and E-commerce,” Morgan Stanley analysts including Jonathan Garner wrote in a note earlier this month. The brokerage continues to prefer mainland shares versus offshore Chinese stocks.
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