What Analysts Are Saying About the Plunge in Hong Kong Stocks

  • Callable bull contracts fingered by Sun Hung Kai Financial
  • PBOC chief fueling concern abbout deleveraging also blamed

After a subdued week, stocks in Hong Kong suddenly plunged on Thursday afternoon, sending the benchmark Hang Seng Index tumbling by as much as 2.2 percent, the most in 11 months. The gauge eventually ended the session down 1.9 percent to 28,159.09.

Here’s what some analysts had to say about the abrupt selloff:

Kenny Wen, strategist at Sun Hung Kai Financial Ltd.

  • A lot of callable bull contracts are tied to levels between 28,150 and 28,199 points on the index, and they’ll be terminated if it falls below that level in intraday trading (the Hang Seng fell to as low as 28.095 Thursday)
  • Some bearish investors were looking for an excuse to “kill the bulls”
  • The spike in Hong Kong’s Hibor rate or jitters about Spain may have prompted some investors to sell, then the termination of callable contracts exacerbated the declines.

Andrew Clarke, director of trading at Mirabaud (Asia) Ltd.

  • People’s Bank of China Governor Zhou Xiaochuan’s warnings on rising household debt, and asset bubbles could have prompted the selling in Hong Kong 
  • The PBOC chief reiterated criticism Chinese corporate leverage in Beijing Thursday amid the twice-a-decade Communist Party congress.

Hao Hong, chief strategist at Bocom International Holdings Co.

  • Investors are getting worried about Zhou’s comments on the continuation of the deleveraging campaign and tighter financial regulation
  • “The details slowly emerged during the day”
  • Analysts downgrading ZTE Corp. after its preliminary nine-month results pointed to a weak third quarter also hit sentiment, so the “poster children of the stock rally, including Geely, began to fall, taking the market down with them,” he said, referring to Geely Automobile Holdings Ltd., which slid as much as 10 percent, the most in seven months.

Ronald Wan, chief executive at Partners Capital International Ltd.

  • Hong Kong stocks had been rising because the market was expecting a message from China’s 19th Party Congress to support the market, he said. To some extent, people think there haven’t been any breakthroughs from the meeting -- which President Xi Jinping opened on Wednesday with a marathon speech -- so the market is pulling back
  • Blue-chip stocks and property developers are facing larger selling pressure because there’s concern hawks at the Federal Reserve are gaining an edge
  • “If the U.S. hikes rates more quickly, blue chips will fall as Hibor rises,” he said.

Ken Chen, Shanghai-based analyst with KGI Securities Co.

  • The city’s stocks are already at relatively high levels so any bad news can trigger selling
  • The U.S. dollar has stabilized a bit recently, while China’s economy is showing signs of moderation, putting pressure on the market
  • Some big funds may have waited for others to lower their guard in the afternoon to sell on the economic concern
  • The sudden drop in mainland China-listed shares in late afternoon trading also added to investor concerns as the market would’ve closed much lower if it weren’t for suspected intervention by state-backed funds known as the national team, he said. The Shanghai Composite Index closed down 0.3 percent.

Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd.

  • The market got a bit panicked on concerns around Spanish politics, and investors are selling stocks with big exposure to the European Union, like HSBC, as well as shares that had rallied a lot this year, due to geopolitical concerns
  • It’s unsurprising that Hong Kong fell so much as it’s the first market Western investors would choose to cash out from, since it’s the most liquid in Asia and the best performer, he said.

The Hang Seng has risen 28% this year, even after Thursday’s selloff.

— With assistance by Jeanny Yu, Justina Lee, Amanda Wang, and Robin Ganguly

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