Hong Kong stocks fall most in two weeks as Fed’s hawkish interest-rate comments, sell-offs in Asia rattle investors

Hang Seng Index ends 1.1 per cent lower on Monday, capping the biggest drop since June 3
Japan’s Nikkei 225 tops Asian benchmarks’ decline with a drop of more than 3 per cent

China stock market

Zhang Shidongin Shanghai

Published: 10:36am, 21 Jun 2021

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Hong Kong stocks fell the most in two weeks, taking their cue from sell-offs in Asia and the US, as hawkish comments by the Federal Reserve on interest rates dampened appetite for risk assets.

The Hang Seng Index closed 1.1 per cent lower at 28,489 on Monday, posting the biggest drop since June 3. That added to a stretch of three consecutive weekly declines. China’s Shanghai Composite Index bucked the turmoil to eke out a 0.1 per cent gain, after the nation’s loan prime rate was kept unchanged for the 14th consecutive month.

Rattling the nerve of traders was the comment by St Louis Fed president James Bullard, who told CNBC that interest rates may move higher next year on inflation risks. His rhetoric was harsher than the earlier projection by other Fed officials who projected that the increase in borrowing costs will probably come in 2023. Fed chairman Jerome Powell said last week that the US central bank had begun to mull curtailing bond purchases, but discussion about raising interest rates was still “premature.”

“The economy will likely see an inflation overshoot and if financial stability is threatened over the next couple of years, that could complicate Fed tightening,” said Edward Moya, an analyst at Oanda. “Stock market volatility will remain elevated.”

Short-maturity US bonds fell, alongside commodities like copper, while the US dollar, a proxy for safe assets, ticked up.

Major benchmarks in Asia all declined, with Japan’s Nikkei 225 benchmark falling more than 3 per cent, making it the region’s worst performer. That followed turbulent trading in US equities, where the S&P 500 posted its biggest weekly drop since February.

The Hang Seng Index has been locked in a less than 2,000-point range over the past three months after a run-up faltered early in the year. Sentiment has since remained skittish, with the fear of unwinding monetary support deepening and buying by mainland investors slowing down amid Beijing’s industry-wide crackdown against tech juggernauts.

Stocks set to thrive on the economic recovery bore the brunt of the sell-off. Chinese hotpot chain restaurant operator Haidilao International Holding sank 5.1 per cent to HK$37.50 and property developer Longfor Group Holdings fell 4.4 per cent to HK$42.90. HSBC Holdings lost 3.5 per cent to HK$45.55.

Traders’ nerves were rattled by comments from St Louis Federal Reserve Bank president James Bullard, who said interest rates could rise sooner than expected. Photo: Reuters

Soho China slipped 1.1 per cent to HK$4.43, extending a 2.6 per cent decline from Friday, after CGS-CIMB Securities downgraded the stock to hold from add, citing limited room for upside after Blackstone Group’s offer to take control of the developer.

China Evergrande, the developer owned by billionaire Hui Ka Yan, rebounded 9 per cent to HK$10.80. It snapped a four-day decline that sent the stock to the lowest level since May 2017. Concerns about the world’s most indebted developer resurfaced after its affiliates missed bond payments and media reports said that the regulators were looking into its links with Shengjing Bank.

On the mainland, Beijing Sun-Novo Pharmaceutical Research, which makes chemical generic drugs, surged 347 per cent from its initial public offering price to 120.09 yuan on Shanghai’s technology-heavy Star Market.

Nine real estate investment trusts (Reits) all rose on the first day of trading on the Shanghai and Shenzhen exchanges, marking the launch of the first-ever such asset-backed products on the world’s second-largest stock market.

The one backed by assets tied to China Merchants Shekou Industrial Zone jumped 15 per cent, the most among all the debutants. The Reits linked to Soochow Suzhou Industrial Park and Guanghe Expressway rose the least, advancing 0.7 per cent each.

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