Stocks battered by macro gloom, capping bad week
Hong Kong had a bad day yesterday, capping a bad week.
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Jasper Moiseiwitsch
19 May 2012
Hong Kong had a bad day yesterday, capping a bad week.
The benchmark Hang Seng Index dropped 1.3 per cent, slipping below the 19,000 level for the first time in 2012, as worries about the mainland economy compounded gloom from the euro zone. Recent declines have erased most of the gains seen in the year to date, threatening to send the index into negative territory for 2012.
The Hong Kong market dropped 5 per cent the past week. Its declines tracked losses across Asia and around the world.
“There are two drivers to the market. The first is [the] euro zone and the second is China,” says Ting Lu, head of greater China economics for Bank of America. “The concerns are mainly about Greece and capital flight. People’s perception is that the situation is getting much worse.”
Among the big movers, the clothing retailer Esprit slid 4 per cent on heavy trading volumes. Esprit generates the bulk of its sales in the euro zone, particularly Germany, and the stock has acted as a local bellwether for the euro-zone crisis. It has declined 16.8 per cent in the past week.
Lu said many local investors were reacting to downbeat news about the mainland economy. He and other economists have cut their growth forecasts for 2012, with analysts now projecting 8 per cent growth in the mainland for the year, down from a previous forecast of 8.5 per cent.
“Most economists cut their forecast [for mainland economic growth] last week, including government economists,” says Lu.
Tracking this negativity about the mainland economy, bank stocks and H shares dropped. HSBC, the biggest market mover of the day in terms of its impact on the Hang Seng Index, fell 3.1 per cent. It has shed 6.8 per cent the past week. China Construction Bank fell 7.3 per cent last week to its lowest point since November 2011.
And if any more evidence were needed that last week was a bad one for China stocks, it also saw the Hang Seng China Enterprises Index - known informally as the H-share index - fall 5.6 per cent.
Lu said there is little on the mainland economic calendar next week. Greece is due to hold an election on June 17 that will directly affect how it handles its national debt problems, but most investors have already priced in a pessimistic outcome for that situation.
Fitch Ratings also cut Greece’s sovereign rating, reacting to the growing expectation that it will be ejected from the euro currency. The euro touched a four-month low of US$1.2666 in Tokyo yesterday.
“The market’s very concerned about contagion and Spain probably being the biggest focus of attention after Greece,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest rate risk-management company. “If the euro breaks US$1.26, there’s probably not a lot of stops going to the lows that we saw in 2010.”
Almost US$4 trillion has been wiped from global equity markets this month as Europe’s deepening crisis threatens the global recovery. Moody’s Investors Service lowered debt ratings at 16 Spanish banks, while Fitch Ratings cut Greece’s credit rating on concern the country may not be able to sustain euro membership.
“Investor sentiment is at its worst,” said Masaru Hamasaki, the chief strategist at Toyota Asset Management. “We don’t know what will happen with Greece, and when something does happen, we don’t know what impact that will have. All people can do is escape from risks, a so-called panic.”
Additional reporting from Bloomberg and Reuters
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