Mainland stocks slump in deleveraging
Updated: 2015-06-27 08:15
By Celia Chen in Hong Kong(HK Edition)
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At a much more modest pace, HK stock market are unlikely to fall as hard now: Analyst
Despite the latest slump, stock analysts said they are confident that Hong Kong shares will rebound in July against the backdrop of a prolonged correction in the Chinese mainland market.
The specter of a Greek default and eventual exit from the eurozone has cast a dark cloud overhanging Hong Kong stock market. But Ben Kwong Man-bun, a director of securities firm KGI Asia Ltd, said he expects the cloud will be lifted in the second half of the year.
Meanwhile, the correction of mainland stocks will continue but not as sharp as the slump on Friday when the Shanghai Composite Index tumbled 7.4 percent to close at 4,192.87, while the Hang Seng Index slumped 1.8 percent to 26,663.87.
The A share indicator could fall another 9.4 percent to 3,800 before stabilizing, Kwong said.
Daniel So Pui-fung , China Merchants Bank International Securities Ltd strategist, said that the recent 20 percent drop of Shanghai Composite Index from the peak at 5,100 will spell the end of the price correction. But he warned that mainland small startup stocks would continue to slump.
Kwong said that Hong Kong shares which have rallied at a much more modest pace will not be seriously hit by the slide of Chinese mainland stock market, said Kwong.
The SAR's stock market benchmark index has increased only 15 percent compared to the 120 percent surge in the Shanghai indicator over past year till Thursday. The lower volatility has improved the investment value of Hong Kong shares, stock analysts said.
Hong Kong-listed H shares of mainland banks and insurance companies as well as medical firms are still worthy for investment at current prices, said Kwong.
Stock analysts said that the Shanghai stock market plunge on Friday was triggered by a massive deleveraging by margin traders. Outstanding margin debt on the Shanghai Stock Exchange dropped for the fourth day on Thursday to 1.42 trillion yuan ($229 billion).
"The correction was basically the result of margin selling," said Francis Lun, chief executive officer at Geo Securities Ltd in Hong Kong.
Concern about a contraction in liquidity has helped fuel losses this week as large amounts of investment funds were tied up in new-share subscription. The lack of any indication that the People's Bank of China will take further action in credit has disappointed investors.
Morgan Stanley cited weak earnings growth, high valuations and the surge in margin debt for its bearish outlook, predicting that the Shanghai Composite Index will fall as much as 30 percent through mid-2016.
"This is probably not a dip to buy," wrote Jonathan Garner, head of Asia and emerging-market strategy at Morgan Stanley in Hong Kong. "In fact, we think the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and the ChiNext has now taken place."
Strategists at BlackRock Inc, Credit Suisse Group AG and Bank of America Corp all warned about the bubble building up in mainland equities, with the median market price hovering at 85 times earnings - higher than when the market peaked in October 2007.
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Hong Kong's stock market benchmark index has increased only 15 percent compared to the 120 percent surge in the Shanghai indicator over past year till Thursday. The lower volatility has improved the investment value of Hong Kong shares, stock analysts said. Asia News Photo |
(HK Edition 06/27/2015 page7)