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Hong Kong stocks snap recent highs amid Chinese monetary policy concerns

Hong Kong’s blue-chip benchmark ended the week on a low note, as investors feared the policy impact of rising inflation.

  • The Hang Seng Index declined 1.07% on Friday, closing at 28,698.80
  • This brought to an end a three-week high achieved earlier in the day
  • Investors are concerned that Chinese policymakers could tighten their monetary stance
  • This was driven by China’s rising factory gate prices, indicating the economy is recovering well
  • Trade the Hang Seng Index with an IG account

Will China tighten monetary stance?

The Hang Seng Index fell 1.07% on Friday (09 April 2021), bringing to an end a three-week high.

The decline came after China’s factory gate prices for March 2021 surpassed analyst expectations to grow at their fastest annual pace since July 2018.

China’s producer price index (PPI) rose 4.4% on an annual basis, according to the National Bureau of Statistics (NBS). This is above Reuters’ 3.5% growth forecast, and also an increase from February’s 1.7% growth.

Although this indicates that the Chinese economy is well and truly recovering, it also brought back some concerns that Chinese policymakers will tighten its current ultra-loose monetary stance.

‘Markets may become increasingly concerned about pressures from rising inflation on Beijing’s policy stance, but we expect Beijing will stick to its ‘no sharp policy shift’ commitment,’ Ting Lu, chief China economist at Nomura, told the South China Morning Post.

He predicts that annual PPI inflation will rise to around 6% by the middle of the year, and become ‘moderate thereafter’.

China’s central bank embarked on an expansionary monetary policy after the coronavirus hit in early 2020. Among the measures it has implemented are interest rate and reserve ratio cuts. It has since reverted to a more neutral stance with the economy now in recovery.

HSI's top gainers and losers of the week

Hong Kong’s blue-chip benchmark closed the week at 28,698.80, down from a three-week peak of 29,152.44 achieved earlier in the day.

The day’s top risers on the index, according to IG data, are: Hang Lung Properties (+2.2%), Swire Pacific (+1.54%), CNOOC HK (+1.34%), Kunlun Energy Co (+1.19%) and China Shenhua Energy Co (+1.07%).

Meanwhile, the biggest losers are: Lenovo Group (-2.44%), China Resources Enterprise (-2.07%), Sands China (-1.7%), Ping An Insurance Group Co (-1.64%) and Wharf Holdings (-1.57%).

Lenovo Group fell for the fifth straight session on Friday, after the company finally settled a multi-year patent dispute with Finland’s Nokia. The stock fell 7.23% this week.

Elsewhere, Tencent Holdings, the index’s largest constituent by market capitalisation, plunged nearly 5% this week, after its largest shareholder announced it had sold off some Tencent shares at a discount.

Looking ahead, DBS analysts had predicted two weeks ago that the Hang Seng Index could hit the 33,400 level in the next 12 months.

‘As the economy recovers and unemployment improves, both growth and value stocks will see good performance in terms of fundamentals,’ said Dennis Lam, Hong Kong and China equities strategist at DBS, at a press briefing recently.

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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