HONG KONG (BLOOMBERG) - Hong Kong equities are rapidly turning into a losing bet as economic woes and escalating street protests hammer sentiment.
The MSCI Hong Kong Index closed down 3.2 per cent on Monday (Aug 5) in a ninth day of declines, matching the longest streak since the 1997 handover whewn Britain passed control of the territory to China.
Landlords, retail stocks and casinos once again bore the brunt of the selling as protesters sought to shut down the city with a general strike. The sinking Chinese currency isn’t helping either, with its plunge past 7 per dollar escalating concerns about the US-China trade war.
Hong Kong business confidence, already strained by the trade war, faces fresh challenges as the street clashes damp spending and deter tourists. The economy contracted more than expected last quarter from the previous three months, with retail sales plunging 6.7 per cent in June from a year earlier, while an IHS Markit purchasing managers’ index fell to the lowest since 2009.
“There’s so much bad news,” said Ben Kwong, executive director at KGI Asia in Hong Kong. “The protests are hurting economic activities in Hong Kong, there’s no progress on trade talks and the yuan just broke 7 per dollar. The selling momentum is still huge.”
The Hong Kong dollar, which is linked to the greenback, weakened as much as 0.11 per cent to 7.8354 on Monday, its lowest since mid-June.
The imposition of new tariffs on Chinese goods by President Donald Trump will likely only worsen the outlook for the former British colony. Even before that move, embattled Chief Executive Carrie Lam said she saw “no room for optimism” for the city’s economy this year as the trade war weighed on growth. Lam spoke to the press on Monday for the first time in about two weeks, warning of a “very dangerous situation” as protesters moved to shut down the financial hub with a general strike and commute disruptions.
Louis Tse, a Hong Kong-based managing director at VC Asset Management, said the near-term outlook for the stock market depends on whether the benchmark Hang Seng Index (which includes shares of Chinese companies) stays above its June low of around 26,762.
“If we closed below this level, I think quite a few investors would sell, including us. That’s the last straw. If that level can’t provide a support, I think Hang Seng would go down further - much further. I can’t see where the bottom is.” The gauge closed 2.9 per cent lower at 26,151 on Monday.
MTR Corp, which has the best risk-adjusted return of any Hang Seng Index member this year, tumbled 3.4 per cent Monday. Shares of the rail operator have lost around 13 per cent since a July 18 record, as the anti-government protests shut underground stations and disrupted train services. Wynn Macau dropped 5.8 per cent, while hotel operator Shangri-La Asia fell 5.2 per cent to its lowest price since February 2017.
A tumbling yuan is the latest challenge to hit Hong Kong’s equity market. The currency on Monday plunged beyond 7 per dollar for the first time since 2008 amid speculation Beijing was allowing depreciation to counter Trump’s tariff threats.
“I would advise investors to tread extra carefully when buying Hong Kong shares,” said Alvin Cheung, Associate Director at Prudential Brokerage. “There could be 300-400 more points on the way down for the HSI. Subsiding fluctuations in the offshore and onshore yuan is now a prerequisite for any kind of stability in stocks.”