25 February 2020

HSI continues decline amid rate concerns

Hong Kong shares continued their decline for the fourth straight day on Thursday as investors worried over rising interbank rates.

Despite news that manufacturing activity in the mainland is improving, the benchmark Hang Seng Index fell 164 points to close at 22,835 after falling more than 300 points on Wednesday. The Hang Seng China Enterprises Index for H shares finished 135 points lower at 10,322.

The HSBC Flash Manufacturing Purchasing Managers’ Index for October rose to 50.9, a seven-month high, from 50.2 in the previous month. A reading above 50 suggests expansion of manufacturing activity.

The People’s Bank of China again decided not to inject cash into the financial system on Thursday, suggesting regulators are concerned that loose liquidity might again be fueling risky credit growth. The Shanghai Composite Index fell 0.86 percent to close at 2,164 points.

Financial stocks were hit hard as the mainland’s benchmark seven-day repo rates opened nearly a full percentage point higher at 5 percent. Investors were also spooked by reports of a large write-off of bad loans at major Chinese banks. Agricultural Bank of China (01288.HK), Bank of Communications (03328.HK), Industrial & Commercial Bank of China (01398.HK) and Bank of China (03988.HK) all fell over 1 percent.

Meanwhile, merger and acquisition news in the local banking circuit continued to boost small and mid-sized lenders. Oversea-Chinese Banking Corp., Southeast Asia’s second-largest bank, is said to be considering a bid for Wing Hang Bank (00302.HK), Bloomberg News quoted industry sources as saying. Wing Hang finished 2.8 percent higher. Dah Sing Banking Group (02356.HK) surged almost 10 percent while Dah Sing Financial Holdings (00440.HK) closed up 5.2 percent.

Paper manufacturers performed well. Nine Dragons Paper Holdings (02689.HK) rose 7.9 percent, Lee & Man Paper Manufacturing (02314) was up 6.3 percent and Samson Paper Holdings ended 4.4 percent higher.

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