Hong Kong stocks snap six-day rally on concerns Ant IPO to soak up liquidity, spike in global Covid-19 infections

Ant Group discloses IPO prices in Shanghai and Hong Kong offerings, set to drain as much as HK$800 billion in subscription cash
Most stock gauges decline across Asia-Pacific market in tandem of overnight US losses amid stimulus impasse

Hang Seng Index

Zhang Shidongin Shanghai

Published: 10:45am, 27 Oct 2020

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Hong Kong stocks dropped for the first time in seven days, as the rout in US and China equities weighed on sentiment and the impending blockbuster stock offering by Ant Group stoked concerns about a liquidity squeeze. HSBC rose to a two-month high as the UK lender considers paying dividend.

The Hang Seng Index retreated 0.5 per cent to 24,787.19 at the close. The market was shut for a public holiday a day earlier. The Shanghai Composite Index held near a two-week low, adding 0.1 per cent to 3,254.32 in a late rebound. The S&P 500 Index slid 1.9 per cent overnight, the most in a month, amid an impasse in fiscal relief package before the November 3 US presidential election.

Caution prevailed in the Asia-Pacific region, with Japan’s Topix trading at its lowest level in three weeks, as Covid-19 infections hit a record in the US in recent days and Europe was a step closer to imposing the strictest restrictions to contain the pandemic. In a sign of the continuing China-US tension, Beijing announced to sanction three US companies including Boeing’s defence unit for weapon sales to Taiwan.

“Markets are likely to remain sensitive to the fiscal stimulus package that is still being negotiated between the two parties,” said Tai Hui, a strategist at JPMorgan Asset Management in Hong Kong. “But the potential optimism around a deal could be dampened as we approach the election day. The recent surge in infections in the US and Europe is also denting market sentiment.”

Ant Group on late Monday announced the prices for its stock offerings in Shanghai and Hong Kong, a move that could raise US$34.5 billion in what would be the world’s largest initial public offering (IPO). It started taking orders from Tuesday.

Banks and brokers in Hong Kong are offering record margin loans of almost HK$300 billion (US$38.7 billion) for retail investors to buy into IPO shares this week, which is on course to be the most popular offering ever in the city. It could freeze as much as HK$800 billion of subscription money, surpassing the recent record of HK$677 billion in the Nongfu Spring IPO two months ago.

While local investors typically borrow from banks, overseas traders convert foreign currencies to Hong Kong dollars to pool funds for IPO subscriptions. In the past, they have pushed up the local currency and the interbank lending rates, prompting the monetary authority to step in to protect the Hong Kong dollar’s fixed peg to the US dollar.

HSBC third-quarter profit beats estimates on strength of Asian business

Chinese companies trading in the city topped the list of declines. China Life Insurance retreated 4.4 per cent to HK$18.24 and CNOOC sank 4 per cent to HK$7.36.

Traders will also have a busy week to parse a deluge of quarterly reports, as the earnings season for Chinese companies gets underway. Some 238 of the 300 biggest stocks on the mainland’s exchanges are expected to release the third-quarter results through Friday. The 61 companies that have already posted the results reported an average 29 per cent profit growth, Bloomberg data showed.

HSBC bucked the trend, rallying 4.8 per cent to HK$33.80 for its highest close in two months. Adjusted pre-tax profit fell 21 per cent from a year ago to US$4.3 billion. That compared with the consensus estimate for a drop to US$2.8 billion. The bank said it is now projecting lower provisions for credit losses and is considering paying some dividend in 2020 after canceling one in 2019.

03:05

Global coronavirus cases pass 40 million mark as infection rates rebound in the US and Europe

Tencent Holdings gained 4.2 per cent to HK$585 for a record close. The US Court of Appeals upheld a trial judge ruling that prevented the Trump administration from enforcing wide-ranging measures to ban WeChat, the popular social-media tool developed by the Chinese company.

CStone Pharmaceuticals added 7.6 per cent to HK$12.46. The Chinese drug maker will receive US$1.3 billion for licensing US biotech firm EQRx to develop two cancer drugs outside the Asian nation, according to an exchange filing.

On the mainland, Xiamen Bank jumped 40 per cent from its offer price to 9.41 yuan on the first day of trading in Shanghai.

With additional reporting by Eric Ng.

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