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Monday, September 12, 2016, 23:39

HK joins global sell-off with 809-point dive

By Duan Ting
HK joins global sell-off with 809-point dive

Hong Kong stocks saw the steepest single-day slump in seven months on Monday amid a global sell-off triggered by an expected rise in US interest rates as early as this month. (Parker Zheng / China Daily)

Hong Kong joined a global stocks sell-off on Monday as fears that US interest rates will go up as early as this month sent bourses into a tailspin.

Local shares plummeted from a 13-month high in tandem with tumbling world markets following remarks by senior US Federal Reserve officials that raising interests rates would be an option to prevent an overheated economy.

The benchmark Hang Seng Index (HSI) slumped 809.10 points, or 3.36 percent, to close at 23,290.6 — the steepest single-day fall since February 11 this year — on a turnover of HK$94.55 billion. The Hang Seng China Enterprises Index dived 403.89 points, or 4.02 percent, to 9,654.08, on a turnover of HK$22.38 billion.

Other regional markets also took a severe beating, with the Shanghai Composite Index slipping nearly 2 percent to 3,021, the Shenzhen bourse losing 2.9 percent to 1,977, Japan’s Nikkei 225 down 1.73 percent to 16,672.9, and the MSCI index for other shares across the region giving up 1.22 percent to 140.34.

The HSI had opened 503 points lower and had lost 680 points, or 2.8 percent, to 23,419 by midday. The Hang Seng China Enterprises Index dropped 371 points, or 3.7 percent, to 9,686. Market turnover hit HK$54.703 billion at lunch break.

Clarence Kwok, chief investment consultant at Bluestone Securities, said the panic was triggered by investor worries that the next US interest-rate increase could come as early as this month, along with apprehension over new stock market regulations by the China Securities Regulatory Commission (CSRC), as well as concern over a “credit negative” rating for Hong Kong by Moody’s.

US Federal Reserve Bank of Boston President Eric Rosengren said on Friday that higher interest rates were needed to prevent the economy from overheating. US stocks plummeted in response to the remarks as investors took flight over a possible rates increase, probably this month, after a growing number of Fed officials made similar hawkish comments.

Investors were also ruffled by CSRC Chairman Liu Shiyu telling the seventh general meeting of the Shanghai Stock Exchange that comprehensive regulations and stock market monitoring were necessary.

Fielding Chen, an economist at Bloomberg Intelligence, said although the Hong Kong and Chinese mainland stock markets had been on a bull run recently, fragility still persists and the fundamentals haven’t changed yet, and local sentiment is easily influenced by that of world markets.

The HSI began its rally in late June this year — climbing from 19,898.8 to a high of 24,364 — following a sluggish performance in the first half of the year.

Kwok, however, said he expected investor worries to be digested by the market in the coming week as the Fed is expected to meet to discuss any rate hike.

In the short term, he expects the HSI to fluctuate between 22,000 and 23,000 points over the next two months and will adjust based on new government policies. In his view, the Fed will probably lift rates in December.

Asked about the significance of the mainland’s new policy of allowing insurers to invest in Hong Kong equities via the cross-border stocks link, Kwok said he expected the funds to flow into the market gradually after the market’s current adjustment.

In a report on Monday, Hao Hong, chief strategist and co-head of research at BOCOM International, said Hong Kong market sentiment has surged even higher on the back of the news that mainland insurance companies can now buy Hong Kong stocks via the Shanghai-Hong Kong Stock Connect.

But, he pointed out that euphoric sentiment, combined with record low volatility, is not a safe set-up for long trades, and long-term investors should pause for better allocation opportunities ahead.

Investment bank Goldman Sachs said on Monday it expected offshore Chinese mainland equities to continue climbing, with a further 9-percent rise.

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