Hang Seng slips below 19,000 as Hong Kong stocks tripped by patchy earnings, hawkish US Fed

The Hang Seng Index lost 1.4 per cent to 18,930.02 at local noon trading break, its lowest level in two weeks. The Tech Index lost 1.7 per cent while the Shanghai Composite Index weakened 1 per cent.

“The Hong Kong market is currently experiencing a correction, while the local market sentiment is approaching a low point,” analysts at Horizon Insights, an independent research firm, said in a note on Wednesday. The market now needs to see stronger economic readings for May to find reasons to continue the rally, they added.

The city’s benchmark index has declined 3.2 per cent this week, on track to post the worst weekly performance since January. The stimulus-induced optimism waned with technical indicators signalling the four-week rally may be stretched, while uneven corporate profits recovery also prompted some profit-taking.

Earnings growth in Hong Kong has lagged the Asia region’s 13 per cent average in the first quarter, while growth in mainland China also came in weak, with nearly half of the companies’ earnings having missed expectations, according to data compiled by HSBC.

“Chinese corporate profits have failed to recover despite the moderate recovery in mainland China’s economic output over the past 12 months,” Arthur Budaghyan, chief emerging market and China strategist at BCA Research said in a note. The recovery will continue to struggle as deflation pressure persists and investors should be cautious to chase the rally, he added.

Adding to the losses, local developers retreated with Henderson Land losing 3.4 per cent to HK$25.90 and New World Development declining 3.3 per cent to HK$9.61, after the US Federal Reserve minutes were more hawkish than expected. Hong Kong’s interest rates move in lockstep with the US as the local currency is pegged to the US dollar.

Central bank officials were disappointed in recent inflation data and believed “disinflation would likely take longer than previously thought”, the latest Fed minutes showed.

Meanwhile, JPMorgan Chase said China’s property downturn is yet to find a solid footing as the unprecedented bailout package introduced last week may be insufficient to turn the sector around.

Other key Asian markets were mixed. Australia’s S&P/ASX 200 dropped 0.5 per cent, whlie South Korea’s Kospi added 0.4 per cent and Japan’s Nikkei 225 added 1.2 per cent.