HK stocks poised for 13-year low as growth concerns weigh

Bloomberg

Hong Kong stocks dropped, putting the benchmark on course for its lowest close since 2009, as Chief Executive John Lee’s maiden policy speech underwhelmed amid ongoing concerns about China’s Covid Zero policy.
The Hang Seng Index slid as much as 2.6%, driven by losses in tech shares including Alibaba group Holding Ltd. and Meituan. The measure, down 31% this year, is already one of the world’s worst-performing equity gauges during the period as China’s growth slowdown and global headwinds from rising inflation and higher interest rates take a toll.
The drop extended losses Wednesday after Lee’s plans disappointed. Delayed economic data releases in China and the nation’s pledge to stick to Covid Zero are adding to worries about consumer demand following weak earnings guidance from bellwethers such as Anta Sports Products Ltd. Meanwhile Covid cases are on the rise in key cities including the capital Beijing. The extended weakness in China markets is due to “slower economic growth, both cyclically and structurally,” said Redmond Wong, market strategist at Saxo Capital Markets. While China’s credit impulse is bottoming, structurally, China is in transition to a new development model and “growth is going
to be slower than previous decades,” he added.
Speaking at the Communist Party congress earlier this week, China’s President Xi Jinping indicated no change in direction for two main risk factors dragging down the economy, strict Covid rules and housing market policies.
With the earnings season underway, expectations for a recovery in the third quarter for MSCI China members are high but “much of this will be driven by a low-base effect due to a weak 3Q21,” Bloomberg Intelligence strategists Marvin Chen and Sufianti wrote in a note. “Sequential momentum suggests 3Q growth may be just enough to recover from Q2’s weakness.”
“Although Hong Kong stocks are at low levels and their valuations are low, the overall tone of the market is still cautious about a global recession, and investors are also waiting to see when the overseas markets will stabilise,” said Stanley Chan, an analyst at Emperor Securities Management Ltd.
The Hang Seng Index is now trading at 0.7 times its book value, the cheapest ever. Baidu Inc. was the biggest loser on the Hang Seng gauge, sliding as much as 10%.
The Nasdaq Golden Dragon China Index sank 7.1% overnight to its lowest since 2013. The Hang Seng Tech Index lost as much as 4.8%, touching a fresh record low since the inception of the gauge in 2020, while China’s CSI 300 Index falls as much as 1% in early trading on Thursday.