(Oct 2): Hong Kong’s stock benchmark led losses in Asia as trading resumed after a holiday, pressured by the recent surge in US yields and disappointment over China’s latest stimulus measures.
The Hang Seng Index slid as much as 3%, the most since March 23. Financials were a major drag, with shares of HSBC Holdings plc slumping 5.7%. A gauge of Chinese equities listed in Hong Kong was down more than 2%. The moves came as markets in mainland China remained shut for holidays, removing a source of potential buying support.
Global financial stocks have come under pressure as a relentless surge in benchmark Treasury yields — the US 10-year yield touched the highest level since 2002 on Thursday — forces investors to assess the impact of higher borrowing costs on banks’ businesses. The slide in Hong Kong tracks losses in peers listed in the UK, where the banking sector is bracing for potential tax hikes as policymakers seek to stabilise public finances.
“Rising bond yields and tighter financial conditions are weighing heavily on financial stocks, coupled with HSBC facing additional concerns over potential UK bank taxes,” said Gerald Gan, chief investment officer at Reed Capital Partners, a multifamily office in Singapore. “I see this more as a broader risk-off repricing of major global financials in the near term.”
China earlier this week unveiled a fresh stimulus package to boost its economy, but investors were largely unimpressed by the measures, seeing them as sufficient to keep growth on track rather than spur a broader revival. A Bloomberg gauge tracking Chinese property developers fell as much as 4.3% as those listed in Hong Kong tumbled. Trading on the mainland resumes Oct 8.
“While price swings are somewhat amplified by the lack of southbound flows and thin liquidity during China’s Golden Week holidays, the distinct defensive tone in the morning session sends a fairly clear signal that investors are underwhelmed by Beijing’s growth support measures announced at the start of the week,” Homin Lee, senior macro strategist at Lombard Odier Singapore, said of the moves in Hong Kong on Friday.
“Hang Seng index universe also gets additional headwinds from the US rate cycle channelled through the HKD peg,” Lee added.
HSBC’s shares were the biggest drag on the Hang Seng gauge, with their slide being the intraday since June 10. China Construction Bank Corp and Bank of China Ltd were down about 2.5% each. Losses in tech heavyweights Alibaba Group Holding Ltd and Tencent Holdings Ltd also weighed on the HSI.
Rising US yields can hurt Hong Kong stocks by tightening local financial conditions through the HK dollar’s peg to the greenback. For financials, higher rates can support net interest margins, but that benefit can be offset by weaker loan demand, higher corporate funding costs and greater credit risks.
“Financials in Asia have been resilient as rising yields expand interest margins, but at some point a risk-off trade comes for them too, especially as concerns around credit risk and corporate spreads rise,” said Leonid Mironov, a portfolio manager at Gavekal Capital.
Uploaded by Chng Shear Lane