Hong Kong stocks slide as China industrial profit data sparks recovery worries

Profit for Chinese industrial companies increased 0.7 per cent from a year earlier in May, decelerating from a 4 per cent gain in the previous month

Hong Kong stock market

Zhang Shidongin Shanghai

Published: 10:31am, 27 Jun 2024

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Hong Kong stocks slumped on Thursday after data showed a slowdown in industrial profits for Chinese companies, adding to concerns about corporate performance in the world’s second largest economy and sending the benchmark to two month lows.

The Hang Seng Index fell 2.1 per cent to 17,716.47 at the close, a level not seen since April 26, and the Hang Seng Tech Index slid 2.7 per cent. The Shanghai Composite Index retreated 0.9 per cent, as investors pruned risk from their portfolios and turned to havens, driving the 10-year Chinese government bond yields to 22-year lows.

Sentiment also took a pounding after the Japanese yen weakened to its lowest level against the US dollar since 1986, spurring concerns about competitive currency devaluation in the Asia-Pacific region, moves that could trigger more capital outflows. The dollar index approached its highest in the year.

Sell-off was broad-based, as all but five stocks in the city’s 82-member benchmark dropped. Profit for Chinese industrial companies increased 0.7 per cent from a year earlier in May, decelerating from a 4 per cent gain in the previous month, the statistics bureau said on Thursday.

This photo taken on May 14, 2024 shows employees working at the Chinese smartphone maker Xiaomi’s headquarter in Nanjing, in eastern China’s Jiangsu province. Photo: AFP

“This is a setback for the economic recovery and the momentum seems to have weakened, with the property market still in a downtrend,” said Yao Liqi, an analyst at Shenwan Hongyuan Group. “Sentiment is weak and the correction may continue.”

Meanwhile, Beijing’s measures to shore up the property market, including steps like a cut in down payment ratios and mortgage rates, drew a tame reaction from investors with analysts at Japanese investment bank Nomura saying the relaxation came in “slower than expected”. Beijing is the last among China’s four first-tier cities to roll out the supportive policies in a follow-through of a nationwide rescue package unveiled last month.

“Beijing did not make major adjustments to the local home-purchase restrictions – unlike Shanghai – indicating Beijing government’s more conservative stance on relaxing policy for the local property market,” Nomura Holdings said in a note.

The property sector’s shrinking market capitalisation is in focus. A clutch of Hong Kong-listed Chinese property developers, including Soho China and Shimao Group Holdings, risk losing the backing of mainland investors, as their valuation falls below the threshold limit for inclusion in the Stock Connect programme.

The Hang Seng Index has lost about a third of the gains made from a January low, as Chinese economic data underwhelmed and amid uncertainty around the timing of a potential interest rate cut by the US Federal Reserve. Much hope is pinned around next month’s third plenary session, where a meeting of the elite of China’s ruling Communist Party will decide on long-term policies and reforms.

Among leading decliners, packaged-water company Nongfu Spring slumped 7.4 per cent to HK$37.10, smartphone maker Xiaomi sank 7.2 per cent to HK$16.54 and instant noodle manufacturer Tingyi Holding retreated 6.5 per cent to HK$9.39.

Bucking the decline, New World Development added 0.4 per cent to HK$7.26 after selling a stake in a property project to its parent for 1.44 billion yuan (US$198.2 million) to lower debt.

Other major Asian markets were broadly weaker. Japan’s Nikkei 225 slid 0.8 per cent, while Australia’s S&P/ASX 200 and South Korea’s Kospi both eased 0.3 per cent.

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