Hong Kong stocks slump, snapping 6-day rally as China frenzy shows exhaustion
Hong Kong stocks fell for the first time in seven days as the US$3 trillion market rally driven by China's stimulus injection showed signs of exhaustion. Technical indicators pointed to an imminent reversal from a 20-month high.
The Hang Seng Index slumped 4 per cent to 21,533.99 at 11.05am local time, the biggest retreat in two years. The Tech Index sank 7 per cent. Markets in mainland China are closed for a holiday.
Alibaba Group Holding tumbled 6 per cent to HK$108.20, e-commerce peer JD.com retreated 8.8 per cent to HK$168.90 and search engine operator Baidu declined 6.8 per cent to HK$107.40. Property developer Longfor slumped 11.5 per cent to HK$16.60 while China Resources Land slid 6.3 per cent to HK$29.65.
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Before today, stocks had risen by 23 per cent amid record turnovers since Beijing unleashed its plans to rescue the stock and property markets on September 24. That rally pushed the Hang Seng Index's 14-day relative strength reading past 90, exceeding the 70-point threshold that technical traders rely on as a danger sign.
"What has happened in the past week has already reminded us about the epic bubble and burst in 2015," Nomura economists including Ting Lu said in a note to clients on Thursday. "A more sober assessment is required" as China's current economic fundamentals are still weak, they added.
The setback may be temporary as Beijing is likely to roll out more forceful measures to fix the ailing property sector and boost consumer confidence, some analysts said. Government reports suggest more support may be needed to steer the economy out of troubled waters.
"[China's easing] should be enough to sustain positive sentiment in Chinese equity markets over a tradable horizon" with depressed positioning, cheap valuations, and the promise of more measures in the pipeline, Goldman Sachs said in a note to clients on Wednesday.
Other Asian markets were mixed. Japan's Nikkei 225 Index rallied 2.6 per cent and Australia's S&P/ASX 200 Index declined 0.1 per cent. South Korea's markets are closed for a public holiday.
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