- Short positions were squeezed amid thin trading, analyst says
- Gaming stocks jump as Credit Suisse sees support for casinos
Hong Kong stocks ended a volatile week on a brighter note as casino shares surged and Cheung Kong Property Holdings Ltd. climbed after buying land.
The Hang Seng Index rose as much as 1.2 percent before sliding in the closing auction to finish with a 0.6 percent gain. The benchmark gauge declined 3.2 percent for the week, its biggest loss in three months, after global central banks questioned the need for more stimulus. A gauge of Macau casino operators surged the most since March before Premier Li Keqiang visits the city next month, while Cheung Kong climbed 1.4 percent. Mainland Chinese markets are shut for a two-day holiday that started Thursday, while Hong Kong’s markets will be closed on Friday.
Volatility returned to financial markets over the past week as the Federal Reserve weighed the case for an interest-rate increase, European Central Bank chief Mario Draghi refrained from adding to stimulus and the Bank of Japan continued to review the benefits of its own policies. Stocks in Hong Kong, where the currency is pegged to the greenback, had outperformed in recent weeks as valuations trailed global peers and mainland investors stepped up purchases via an exchange link with Shanghai.
There’s “thin volume and so people who want to close their short positions are being squeezed and forced to pay up,” said Andrew Sullivan, managing director of sales trading at Haitong International Securities Group Ltd. in Hong Kong.
The Hang Seng Index climbed to 23,335.59, with trading volume 8.3 percent lower than a 30-day average. A gauge of implied volatility on Hong Kong’s benchmark equity index jumped the most since January on Monday, after falling to the lowest since April 2015 at the start of the month. Adding to the price swings was a rebalancing of FTSE stock indexes, which takes place on Thursday. The Hang Seng China Enterprises gauge rose 0.6 percent, paring its weekly loss to 4.6 percent.
Thursday’s closing auction session “operated smoothly and was orderly,” said Scott Sapp, a spokesman at Hong Kong Exchanges & Clearing.
The rally in H shares was looking frothy last week, with a relative strength index reaching 77 on Friday, above the 70 level that signals to some traders that shares are due to decline. The Hang Seng China Enterprises Index plunged the most in seven months on Monday after Boston Fed President Eric Rosengren warned that waiting too long to raise interest rates could overheat the U.S. economy.
“It seems investors are taking a profit in Hong Kong,” said Banny Lam, head of research at CEB International Investment Ltd. in Hong Kong. U.S. interest-rate hike expectations are “casting a shadow over markets.”
A Bloomberg Intelligence index of six gaming stocks jumped 5.5 percent to its highest close since August 2015, led by an 8.3 percent surge for SJM Holdings Ltd. Galaxy Entertainment Group Ltd. and Sands China Ltd. advanced at least 5.3 percent, the top gainers on the Hang Seng Index. Investors are speculating on policies supportive of the industry during Premier Li’s October visit to Macau, Credit Suisse analysts including Kenneth Wong wrote in a report Wednesday.
CGN Power Co. climbed 2.2 percent after the U.K. government approved Electricite de France SA’s plan to build two nuclear reactors for 18 billion pounds ($24 billion) in southwest England. CGN Power is a unit of state-owned China General Nuclear Power Corp., which is due to provide a third of the finance for the project.
Energy producers fell after crude dropped on Wednesday amid expectations a global glut will worsen. China Petroleum & Chemical Corp. declined 0.6 percent to a three-month low while Cnooc Ltd. lost 0.8 percent.
China Life Insurance Co. advanced 2.7 percent, paring its weekly loss to 3.7 percent and leading insurers higher.