Hong Kong Stock Rally Runs Out of Steam as Casino Shares Retreat

Updated on
  • China coal shares fall amid government intervention concern
  • Small-cap share gauge drops for the first time in seven days

Hong Kong stocks pared a third weekly advance amid signs a world-beating rally was growing tired. Sands China Ltd. and Swire Pacific Ltd. slumped after analysts downgraded their shares, while Cathay Pacific Airways Ltd. posted its biggest weekly loss in a year.

The Hang Seng Index fell 0.4 percent at the close, trimming gains this week to 0.8 percent. Sands China tumbled 4.1 percent to lead casino operators lower. Swire Pacific declined the most since February after HSBC Holdings Plc downgraded its recommendation on the shares. Cathay Pacific has slumped 12 percent this week after reporting lower earnings. The Shanghai Composite Index rose 0.1 percent, while a gauge of Chinese stocks in Hong Kong dropped 0.5 percent.

Benchmark gauges in Hong Kong were the best performers worldwide this month through Thursday as speculation that developed economies will keep monetary policy loose spurred demand for riskier assets. While the announcement of a long-delayed exchange link with Shenzhen this week and better-than-expected profits by companies including Tencent Holdings Ltd. extended the rally, technical indicators suggested gains were too soon, too fast.

“The Hong Kong market has gone up quite a bit already and you need further positive news to stimulate the market,” said Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong. “Interim results have had a positive impact on the market. But these corporate earnings have already been reflected and it’s difficult to push the market up further.”

The Hang Seng Index fell to 22,937.22. Its 14-day relative strength index was at 70.8 on Thursday, near the highest level in more than a year. Trading volumes in Hong Kong were 34 percent below the 30-day average. The Shanghai Composite Index closed at 3,108.10, with about five stocks falling for every four that rose.

Cathay Pacific fell for a third day after its first-half profit tumbled 82 percent. A Bloomberg Intelligence measure of large casino stocks slid 2.8 percent, the most in two weeks. Swire Pacific sank 4 percent. Bank of East Asia Ltd. declined 3 percent after reporting a 38 percent drop in first-half profits.

Coal Shares

China Shenhua Energy Co. sank 4.3 percent in Hong Kong, paring this year’s advance to 13 percent and pacing coal producers lower. The government may start to get worried as coal prices have been rising too fast, according to UOB-Kay Hian Holdings Ltd. analyst Yan Shi.

The Hang Seng Composite Small Cap Index retreated 0.3 percent, halting a six-day winning streak. The gauge climbed to its highest level since April on Thursday after the Securities and Exchange Commission said this week smaller stocks with a market value of more than HK$5 billion ($645 million) will be included in the Hong Kong-Shenzhen link. The connect program may start in about four months and won’t be subject to overall caps on net purchases, while daily limits will apply, according to details released Tuesday.

The ChiNext index of small-company shares added 0.1 percent in Shenzhen after falling as much as 0.3 percent. The gauge gained 3.8 percent this week.