Two-Minute Tumble Highlights China Market Jitters in Hong Kongby
Just two minutes of trading accounted for 9% of day’s volume
There were no reported trading errors related to the incident
A two-minute plunge and snap back by Chinese stock futures in Hong Kong has added to the nervousness in the city’s market, amid concerns over China’s economy.
The Hang Seng China Enterprises Index tumbled from an advance of 1 percent to a loss of 1.5 percent from 2:14 p.m. and 2:16 p.m. on Monday, before rebounding to a gain. More than 11,900 May futures on the gauge that tracks dual-listed companies in Hong Kong changed hands in those two minutes, according to data compiled by Bloomberg.
“The market reacted like a startled cat,” Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong, said by e-mail. “There is a lack of clarity on what is happening in China.”
Hong Kong’s exchange operator closely monitored market activities and did not receive any reports of erroneous trades for the mid-afternoon tumble, Lorraine Chan, a spokeswoman for Hong Kong Exchanges & Clearing Ltd., said on Monday. The company said on Tuesday it had no update on the incident.
A spokesman for the Securities and Futures Commission declined to comment.
Futures appeared to plunge ahead of the underlying index. Both gauges were relatively calm before a 118-contract trade hit the futures in the 29th second of the first minute, data compiled by Bloomberg show.
The decline saw the contract drop 253 points in about a minute before almost immediately rising by about 180 points over the next minute. The amount of trading in the derivatives during that period accounted for 9 percent of the day’s volume. Before that, volume in each minute of trading had averaged about 200 contracts.
A total of 8,476 trades were executed from 2:14 p.m. and 2:16 p.m., with the biggest trade involving 200 contracts, data compiled by Bloomberg show. On average, each trade involved about 1.4 contracts.
Monday’s swing came at a testing time for Hong Kong traders in the wake of China’s stock market meltdown. The Hang Seng China Enterprises Index, a measure of 40 Chinese companies listed in Hong Kong, entered a technical correction on Friday after falling more than 10 percent from its recent high.
Data over the weekend showed the nation’s industrial production, retail sales and investment in April all trailed estimates. Through yesterday, the gauge was down 13 percent this year and is among the world’s worst, a performance that follows a 19 percent decline last year.
The incident could have been the result of a so-called fat finger mistake by a trader, said Peter Lewis, the Hong Kong-based founder of Peter Lewis Consulting (China) Ltd., and a former head of trading at HSBC Holdings Plc and Societe Generale SA.
“It does create problems when you see big drops like that and rebounds, because it obviously distorts the market,” he said.