Hong Kong stocks drop to halt monthly gain on weak China manufacturing, corporate results

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New World Development, state-owned banks lead plunge as market slips after best monthly performance since April

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An employee produces electronic components at a factory in Nantong, in eastern China’s Jiangsu province, on August 6, 2024. Photo: AFP

Zhang Shidongin Shanghai

Published: 10:21am, 2 Sep 2024Updated: 12:18pm, 2 Sep 2024

Hong Kong stocks slid to halt a monthly gain as an official report showed that manufacturing in China contracted for a fourth consecutive month and a flurry of companies from banks to property developers reported disappointing results.

The Hang Seng Index fell 1.8 per cent to 17,670.72 at the noon break, backtracking after the benchmark rose almost 4 per cent in August for the biggest monthly gain since April. The Hang Seng Tech Index dropped 1.8 per cent, and the Shanghai Composite Index retreated 0.6 per cent.

Developers sank after New World Development (NWD) warned of an annual loss and China Vanke posted its first interim loss in two decades. Industrial and Commercial Bank of China (ICBC) and China Construction Bank, the nation’s biggest state-backed lenders, dropped after reporting lower first-half profits.

The purchasing managers’ index (PMI), a survey of sentiment among Chinese factory owners, fell to 49.1 in August, the National Bureau of Statistics said over the weekend, down from 49.4 in July and short of the consensus estimate of 49.5. Any reading below 50 indicates contraction. Separately, a private PMI that targets mainly smaller companies stood at 50.4 last month.

“China continues to play the role of buzzkill in the global Goldilocks scenario,” said Stephen Innes, managing director at SPI Asset Management in Bangkok. “The world’s second-largest economy is sputtering, with factory activity lagging, deflationary pressures mounting, and the call for stimulus growing louder.”

The rebound in Hong Kong in August may face a reality check as traders digest the weak results, which may trigger earnings downgrades. So far, 73 companies have disclosed interim results that average 4.9 per cent profit growth, according to Bloomberg data. That compares with a 6.1 per cent annual increase last year. The 3.7 per cent gain in the Hang Seng Index in August was mainly driven by expectations that the Federal Reserve will cut the interest rate for the first time in four years amid cooing inflation and a softening labour market.