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Friday, July 29, 2016, 21:35

Hong Kong stocks drop following slump of A shares

By Duan Ting

HONG KONG - Hong Kong stocks were dragged down by the recent slump of A shares and Japan’s monetary policy decision on Friday, according to experts.

The benchmark Hang Seng Composite Index recorded a drop of more than 300 points before closing at 21,891.37 points on Friday, a drop of 282.97 or 1.28 percent. The Hang Seng China Enterprises Index dropped 123.88 points or 1.36 percent to 8,958.97. And the Shanghai Composite Index and Shenzhen Component Index saw a decline of 0.5 percent and 0.64 percent to close at 2,979.34 and 10,329.44, respectively.

Kenny Wen, wealth management strategist of Sun Hung Kai Financial, said to China Daily that the concern that the mainland regulators may tighten the rules on wealth management products and the lower expectation of the People’s Bank of China cutting the interest rate and the reserve requirement ratio weighed down the performance of A shares in the last three days, which also dragged down Hong Kong stocks.

It was revealed on Tuesday that the China Banking Regulatory Commission is drafting regulations on wealth management products, the funds from which will not be allowed to invest in stocks and “non-standard assets”. The rules are to reduce the risks in the financial systems.

Hong Kong stocks extended their losses after Japan released its monetary policy earlier, with the market believing the policy is not strong enough, according to Wen. The Bank of Japan announced its monetary easing program to maintain its interest rate at negative 0.1 percent and pledged to increase the purchase of equity-traded funds (ETFs) to 6 trillion yen ($58.1 billion).

Wen said Hong Kong stocks were also impacted by the decline of the price of oil and the bad performance of some small cap stocks’ prices recently, as well as the less impressive interim results announced by some companies on Friday.

Wen expected the callback of both A and H stocks to only last for one to two weeks as he observed the funds have been flowing into the mainland and Hong Kong market recently under the global economic downturn.

The lowest point of the Hang Seng Index is expected to be 21,300 and the Shanghai Composite Index is expected to fluctuate within 3,000 points in the coming weeks, Wen said.

The Hang Seng Index has increased by 2,638 points since June so the current callback is understandable, Wen added.

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