Hong Kong’s USD530b stock rally buckles


Stocks fall the most since early August as protests escalate
Newsfeed12 Nov 2019
Photo credit: AFP Photo


Market news selected by the DBS Chief Investment Office


MAINLAND CHINA & HONG KONG

Hong Kong stocks fell the most since early August as protests escalated after police shot and wounded a protester on Monday (11 November) morning.

The Hang Seng Index dropped 2.62% to 26,926.55, with local landlords plummeting. Police fired tear gas in the centre of the business district to disperse chanting office workers who were blocking roads. Signs that optimism over a potential US-China trade deal has been overdone added to the bearish sentiment. The MSCI Hong Kong Index slumped 2.9% and the local dollar weakened.

The abrupt drop in the city’s stocks – the worst in Asia – follows a half trillion-dollar rally that drove a measure of buying momentum to its highest level in almost nine months and pushed the Hang Seng Index above its 200-day moving average.

The local dollar fell 0.04% to 7.8334 per dollar after its best week since mid-September. That is even as a gauge tracking the demand for cash jumped to the highest level since early 2016. The currency’s three-month forward points surged to 75.

Concern is also rising that Hong Kong’s bleak economic situation has yet to fully filter through to its stocks. Faced with its worst business outlook since the 2008 financial crisis and a plunge into recession, a chill may be coming for Hong Kong’s corporate earnings.

“Hong Kong’s gains are just part of a global risk-on rally amid a flood of liquidity, and the short-term gains are way too strong,” said a fund manager.

While US President Donald Trump said late last week (ended 8 November) that trade talks with China were moving along “very nicely”, he added that reports about how much the US was ready to roll back tariffs on China were “incorrect”. Those reports had helped fuel the risk-on rally that sent a gauge of global stocks to its highest level since early 2018.

To be sure, traders can still find opportunities in a market where many firms rely on the mainland for earnings. China’s A-shares are about 28% more expensive than their Hong Kong-listed peers, compared with a long-term average of 20%. – Bloomberg News.

The Shanghai Composite Index fell 1.83% to 2,909.97.

 

REST OF ASIA

A hunt for yield is prompting South Korean investors to pile tens of billions of dollars into unconventional assets abroad, raising risks of losses on unfamiliar products.

Holdings of overseas alternative assets such as real estate, infrastructure, private equity and debt, and hedge funds by investors in Asia’s fourth-largest economy rose to at least about KRW201t (USD173b) this year, a record, according to data. That compares with KRW158t held by fund managers, pension funds, insurers, and brokerages at the end of 2018 and KRW118t in 2017.

Korean investors are joining peers around the world in putting more money in alternative assets as equity and bond returns sag. The global amount of such products under management has risen more than three-fold over the past decade to USD9.5t in 2018, and it is forecast to grow to USD14t in 2023, according to Preqin data. The assets can expose buyers to bigger risks than conventional securities, because they are often less liquid with less information about them available to the public.

Some signs of trouble are already emerging.

Korean institutions need to boost returns on their investments to help provide for an ageing population, and the national pension fund has KRW708t in assets. But with a global economic slowdown and sliding interest rates dragging down returns, there are signs that some investors have grown less cautious when opportunities to earn extra yield arise. – Bloomberg News.

South Korea’s Kospi Index gained 0.26% to 2,129.59 at the open on Tuesday (12 November). It finished 0.61% lower at 2,124.09 on Monday.

Australia’s S&P/ASX 200 Index fell 0.38% to 6,746.70 on Tuesday morning. The index rose 0.72% to 6,772.53 the previous session.

The Taiwan Stock Exchange Weighted Index (Taiex) dropped 1.31% to 11,427.28 on Monday.


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