China, HK stocks kick off 2019 with losses amid fresh data adding to slowdown concerns

03-Jan-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

China and Hong Kong stock markets kicked off the new year with losses, as two gauges showing manufacturing slipped into contraction in the world’s second-largest economy added to slowdown concerns.

The Shanghai Composite Index dropped 1 per cent, or 25.09 points, to 2,468.81 in Wednesday trading, and is poised for the lowest close since November 2014. The Hang Seng Index, packed with mainland Chinese companies, sank 2.4 per cent, or 615.82 points, to 25,229.88.

Equity gauges elsewhere in Asia also fell, with South Korea’s Kospi and Australia’s S&P/ASX 200 Index shedding at least 1.2 per cent. Taiwan’s Taiex index lost 1.6 per cent after Chinese President Xi Jinping said the island must be united with the mainland in a speech in Beijing. Japan’s markets are closed for a holiday.

The Shanghai Composite ended 2018 with an overall 25 per cent decline, making it the world’s worst-performing stock benchmark. Meanwhile, Hong Kong’s Hang Seng Index fell 14 per cent for its worst performance in seven years. Many traders have been hoping the new year will mark a turning point, but a snapshot of preliminary economic data dashed such optimism for now.

What should traders of Hong Kong, China stocks expect after a year of ‘heaven to hell’?

An official purchasing managers’ index of China’s manufacturing dropped to 49.4 in December and a private gauge that focuses on smaller industrial companies also slid to 49.7. A reading below 50 indicates contraction. China’s growth may have slowed to 6.4 per cent in the fourth quarter from 6.5 per cent for the previous three-month period, according to Bloomberg data.

“The entire market is pessimistic about the growth prospect and nothing can reverse such mood on the policy front,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “The woes aren’t going to end soon.”

Hong Kong stocks down a wretched 14 per cent in 2018 the worst performance in 7 years

2018 was also unpleasant for global markets, with US stocks ending up with the smallest gain since the global financial crisis and crude oil capping its first annual loss since 2015. Traders are concerned about fast increases in borrowing costs as well as growth that may have already peaked in the world’s largest economy.

Health care stocks led the decline in both the mainland and Hong Kong on Wednesday as the sector continues to be haunted by the fear of a pilot programme of centralised procurement of generic drugs that has brought down prices by an average 50 per cent. Yanan Bicon Pharmaceutical Listed tumbled by the daily limit of 10 per cent to 18.97 yuan in Shenzhen and Kangmei Pharmaceutical also dropped by that much to 8.29 yuan. In Hong Kong, CSPC Pharmaceutical Group shed 6.4 per cent to HK$10.58 and Sino Biopharmaceutical tumbled 3.9 per cent to HK$4.96.

Chinese pharmaceutical stocks plunge on bigger than expected price cuts of generic drugs on compulsory bulk tendering

Zijin Mining Group shed 8.1 per cent to 3.07 yuan in Shanghai after the gold producer said it plans to raise as much as 8 billion yuan (US$1.17 billion) selling additional new shares in the mainland. Its Hong Kong-traded shares fell 4.7 per cent to HK$2.83.

Kweichow Moutai, the world’s most valuable distiller, added 1.7 per cent to 599.86 yuan after saying full-year profit probably rose 25 per cent in 2018.

The US-China trade war continues to be a wild card for equities. A US delegation will hold trade talks with Chinese officials in Beijing next week to try to iron out differences over such things as market access and intellectual property protection.

China to host US trade talks in Beijing in early January

An end to the trade war could boost battered stocks on mainland and Hong Kong Kong exchanges.

A number of analysts expect 2019 will be better for these markets. Deutsche Bank predicts a 10 per cent rise in the Hong Kong market, while Morgan Stanley and Goldman Sachs forecast single-digit returns in the city. UBS expects China will deliver a high single-digit rate of growth.


Category: FinanceAsia

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