Hong Kong led the head-long retreat by Asian markets in early trading after the body blow from the U.S. credit rating reduction and global economic woes. But Hong Kong stocks recovered about half of steep early losses, partly on hopes the U.S. Federal Reserve Board will announce another round of easier monetary policies today.
The blue-chip Hang Seng Index plummeted more than 4%, 902 points, in the morning to come within 44 points of the 20,000 support level. The drop was more severe than that of most other Asian markets as investors had their first chance to react to Standard & Poor’s decision to reduce the U.S. credit rating.
Hong Kong gained that unwanted distinction because of its relatively high liquidity, according to Castor Pang, head of research at Core Pacific Yamaichi. “Hong Kong seems to be the market where investors want to reduce holdings in Asia,” he told Equities.
But by the end of the day the Hang Seng pared losses to 456 points, 2.2%, at 20,491 in heavy turnover. That came on top of Friday’s massive 939-point loss.
The market is apparently oversold, Pang said, and could rebound if the Fed announces another round of monetary easing.
Nearly forgotten amid all the dire news from overseas, China will announce its July inflation rate and other economic statistics on Tuesday. China’s battles with stubborn inflation had been the market’s obsession until the U.S. debt-ceiling crisis two weeks ago.
Investors want to see signs price rises in China have peaked and started down, allowing authorities to pull back on China’s tight money policies. But they probably won’t see those signs Tuesday: Pang said the consensus for July inflation is 6.3%, down only marginally from 6.4% in June.
The most significant inflation figures will probably come after August, according to Pang. That is because steep rises in food prices have fueled Chinese inflation, and August is the month that major crops in China will be harvested. Rich harvests would likely lead to a sustained drop in Chinese inflation. End
DAILY FIX — Huge Early Losses Cut in Half
Hong Kong Blue Chips: -456, -2.2%, to 20,491, 08-08-11, Hang Seng Index
Chinese Stocks in Hong Kong: -321, -2.4% to 11,435, 08-08-11, HSCE Index
Shanghai Stocks: -3.8%, 2,526, 08-08-11, Shanghai Composite Index.
Chinese Stocks in the U.S.: -5.5 to 403.1, 08-05-2011, Bank of New York Mellon, ADR Index-China
Insight: Hong Kong stocks plunged in early trading in response to the cut in the U.S. credit rating and fears of a global recession. But stocks cut about half of the early losses on hopes the EC bank would buy bonds from Spain and Italy and the U.S. would announce another round of easier monetary policies. Chinese banks and resources companies were hit hard: Bank of China (HK) 2388) -4.6%; Jiangxi Copper (0358) -4.0%. KGI Research
Quotable: “The HSI broke below the critical supporting level of 21,500 with heavy volume on Friday and we see the index to fall further before it reaches the next support level at 20,000.” BEA Securities. 8-5-2011
Chinese Company to Watch: “Chinese airlines will get support from the uplift of fuel surcharge. Air China and a number of Chinese airlines have announced that, from August 2 onwards, the fuel surcharge will increase from 140 yuan to 150 yuan for domestic flights longer than 800 km,…: CSFG. 8-5-2011
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For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN