Hong Kong stocks decline as traders await more China recovery signals, while fund warns of market pullback as Fed meets

China’s official PMI manufacturing index rose to 50.1 in January, ending a three months of contraction, according to the statistics bureau
Fund manager MegaTrust warns the market could drop by up to 18 per cent from its Lunar new Year high as fatigue sets in

China stock market

Jiaxing Li

Published: 11:20am, 31 Jan 2023

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Hong Kong stocks declined, trimming monthly gain as traders await more recovery signals in the Chinese economy amid worries about another US rate hike this week. BYD jumped after the electric-car maker projected a record quarterly earnings.

The Hang Seng Index fell 1 per cent to 21,842.33 at the closing of Tuesday trading, after losing 2.9 per cent on Monday. The two-day slide narrowed January’s advance to about 10 per cent. The Tech Index retreated 0.8 per cent, while the Shanghai Composite Index lost 0.4 per cent.

Alibaba Group fell 2.3 per cent to HK$106.50, Tencent Holdings tumbled 2.9 per cent to HK$376 while JD.com lost 3.8 per cent to HK$228.40. Wuxi Biologics dropped 1.4 per cent to HK$66.05 and Sunny Optical Technology slipped 4.7 per cent to HK$104.40.

“The market has been running a bit hard in the short term,” said Willer Chen, senior analyst at Forsyth Barr Asia in Hong Kong. “Some stocks may not see much room for further gain before real fundamental recovery” is established, he added. “More proof of consumption and property recovery could boost investor confidence.”

Stocks fell despite a government report showing the official PMI manufacturing index rising to 50.1 from a three-year-low in December, China’s statistics bureau said on Tuesday.

China fund sees 18 per cent drop in Hong Kong stocks as fatigue sets in

The Fed holds its first policy meeting of the year this week and is likely to continue hiking this year to slow down inflation, despite expectations for a downshift in the size of increase among Wall Street analysts.

MegaTrust Investment cautioned the Hang Seng Index is overstretched and could drop by as much as 18 per cent from its Lunar New Year peak, citing recent market history. The three-month rally has helped restore US$1.55 trillion of capitalisation to the broader market, though technical readings are flashing “sell” signal.

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“We stay overweight on Chinese equities given the on-track macro recovery,” Morgan Stanley strategist Laura Wang said in a research note on Tuesday. The investment bank sees the market pullback as an opportunity to buy the dip, she added.

Foreign funds have added a net 141 billion yuan (US$20.9 billion) worth of onshore stocks this month through Monday, according to Stock Connect data. That is almost 50 per cent above the previous monthly record, according to Bloomberg data going back to 2017.

Foreigners pile into Chinese shares, buying record amount in January

Elsewhere, car maker BYD rose 2.3 per cent to HK$245 to near a five-month high. The carmaker said it expects 2022 earnings to reach as high as 17 billion yuan (US$2.52 billion) on record sales, according to an exchange filing. That suggests its fourth-quarter earnings could jump by 13 times to a record 7.7 billion yuan.

Hubei Jianghan New Materials jumped 44 per cent to 51.25 yuan in Shanghai on its first day of trading.

Asian stocks retreated on Tuesday. The Kospi in South Korea dropped 1 per cent, while S&P/ASX 200 in Australia and the Nikkei 225 in Japan lost 0.1 to 0.4 per cent.

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