Hong Kong Indexes in Free Fall

While US markets turned positive yesterday, Hong Kong did not follow but diverged as its major indexes and constituents continued a sequential decline.

Hong Kong Indexes

The Hang Seng, HSI, has had 5 straight days of decline.  The Hang Seng Enterprises Index, declining for 3 days, has entered correction territory at over 10% below its recent high.

The 10 stocks showing the worst weekly drop in the Hang Seng, from 9.7% to 17.24% stocks come from a wide range of sectors, but were dominated by mainland developers including Country Garden, 2007 hk, China Resource Land, 1109 hk and China Overseas, 688 hk. The fall was felt in all sectors, however, as 41 of its 50 members declined at the last close.

Hang Seng Decliners

 

data source: AAstocks

The Hang Seng Enterprises, which has now corrected with an over 10% drop, has been dominated by securities companies and banks.  However, the pain was widespread as the last close saw 39 of its 40 members decline.

HSCEI decliners

data source: AA stocks

In the U.S., the increased volatility and major Monday drop was generally blamed on inflation fears and rate increase expectations.  In the past, Asian markets have often followed the U.S.  However, as China has grown as an economic power, ranked just behind the U.S., the decline may be more indicative of potential weakness in China growth versus reactions to the U.S. market.

Up until this week, both the Hang Seng and the Hang Seng Enterprises Index had been among the best performers year to date.  This made them ripe for  a correction.  Whether there are other reasons under this decline, remains to be seen.  Slowing car sales, slowing cellphone sales, financial crackdowns, pollution enforcement, heavy debt loads, slowing residential construction, may finally be negatively impacting the economy despite continued projections of growth of over 6% by the government.

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