Hong Kong Review – Profit-taking Hit HK Shares

Hang Seng Index plunged 327.99 points on Tuesday as the market booked profits from recent gains ahead of the FOMC results due during US hours. China’s economic data also drove the index 1.5% lower than prior close.

China’s import slowed to 22.7% in July from 34.1% growth in June while export slowed from 43.9% in June to 38.1% in July. Property prices in 70 of China’s large and medium sized cities were unchanged in July but remained high at 10.3% (yoy). Stubbornly high property prices may add pressure to the government in taking down the probability of an asset bubble from happening, which is not positive for property stocks. Hang Lung Properties, Sino Land, and Henderson Land fell 1.62%, 1.46%, and 0.68%, respectively.

FOMC meeting ended up with the Fed delivering the message that the US economy may need more stimulus, driving the Dow Jones Index to end down 55 points. A step that would be taken by the FOMC is the reinvesting of their proceeds of its investments in mortgage-backed securities as they mature into Treasurys. Despite its little impact on the economy, the move would at least keep Fed’s balance sheet from shrinking. Another point delivered by the Fed was that the US economy might not be ready for a monetary tightening in the near-term. How these two points received by the markets are remain to be seen. Should the delay in tightening overrule the stagnating economy, stocks will gain, but should the Fed’s rather gloomy view over the current economic conditions dominate, then stocks will fall.

First reaction from the US market pointed at the first as stocks rebounded off lows, and this could mean positive for Asia’s Wednesday’s session. However, most stocks still ended up in the red at the US market close, with just a few above the water like Merck and Pfizer which are defensive stocks (+1.16% & +0.91%, respectively), and Amazon (+0.91) along AMEX (+0.78%) and Motorola (+0.75%). This could also mean that Fed’s statement while positive may be short-lived. In the end, HK’s strong sentiment over the earnings season in progress will re-dominate the investors’ sentiment.

Today (Wednesday), HKEX and China Overseas Land & Investment will announce their interim results.