Hong Kong stocks on track for worst week since March 2020

Asia-Pacific equities updates

Hong Kong’s stock market wobbled on Thursday, leaving it on course for its worst week in more than a year, after Beijing’s intensifying clampdown on sectors from gambling to education knocked investor sentiment.

The Hang Seng index lost 1.5 per cent at the close. Casino group Sands China was among the biggest fallers for the second day in a slide triggered by efforts from Macau’s government to tighten oversight of the industry. The Hang Seng gauge has shed almost 6 per cent this week, leaving it on track for its worst run since the market tumult in March last year.

The Hang Seng Tech index, spanning another industry under heightened scrutiny, ended the day in Asia down 1 per cent. The CSI 300 index of mainland Chinese stocks slipped 1.2 per cent.

Despite the simmering concerns, some analysts and investors remain constructive on China and Hong Kong, two of the world’s biggest emerging capital markets.

“We see this as a correction that we didn’t expect”, said Luca Paolini, chief strategist at Pictet Asset Management, “but it doesn’t change fundamentally the picture for China in the long term”.

Earlier this week, debt-laden Chinese housebuilder Evergrande brought in restructuring advisers in the face of a liquidity crunch. A “messy default” for Evergrande “would definitely change at least our tactical view on China”, said Paolini.

“I don’t see this happening”, he said, “and I think the government will do all they can not to bail them out, but to make sure that it doesn’t have implications for the rest of the market.”

The drop in Chinese equities did not ripple through to European markets on Thursday. The Europe-wide Stoxx 600 edged up 0.6 per cent in morning trading. The Dax in Germany was up 0.7 per cent, while the CAC 40 in France rose 0.6 per cent. London’s FTSE 100 index gained 0.4 per cent, led by travel stocks including easyJet and Ryanair amid optimism about tourism and vaccination rates.

“I don’t expect anything dramatic in the next few days [in Europe]”, Paolini said, although he anticipated a stronger focus on the upcoming German election. Noting that Europe was “doing better than elsewhere on the pandemic side”, he said he did not perceive “anything significant in the short-term that can change the favourable momentum that we see” in the region.

Futures contracts that track Wall Street’s S&P 500 index signalled that the blue-chip index would open flat. Those on the tech-heavy Nasdaq 100 index also held steady.

In debt markets, the yield on the US 10-year Treasury note was flat at 1.3 per cent. The yield on the German 10-year Bund was also steady on Thursday morning. The oil benchmark Brent crude was flat at $75.46 per barrel, having rallied this week as Hurricane Ida led to the closure of US refineries.

The dollar index, measuring the greenback against six other currencies, ticked up 0.13 per cent. Sterling edged down 0.09 per cent against the dollar to fetch $1.38.

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