Hong Kong’s main stock index tumbled to a two-month low on Tuesday as investors took fright over a multitude of woes including a possible Greek default, tighter market liquidity and worries about an American interest rate rise.
The benchmark Hang Seng Index fell 1.1 per cent, 295.1 points, to 26,566.7. In Shanghai, the main index plunged 3.44 per cent, or 174.3 points, to 4,888.64, closing below the 5,000-point level for the first time since June 4.
The stock price falls were welcomed by some observers, who said the markets had got out of control.
“It’s like a mad house,” warned Louis Tse of VC Brokerage.
Investors “were on a high”, fuelled by ample liquidity and margin lending but these were now being taken away by the central government, Tse said.
Liquidity is set to tighten further in the mainland equity market this week, with upcoming A-share initial public offerings expected to amount to 37.49 billion yuan, including one of the market’s biggest IPOs this year by broker Guotai Junan Securities.
The technology heavy Shenzhen Composite Index also fell sharply, down 3.59 per cent to 2,962.65. Hong Kong’s H-share index was down 2.71 per cent to 13,252.93.
The Hang Seng Index has now dropped more than 7 per cent since hitting a seven-year high in April as investors globally fret that Greece will be unable to meet its debt obligations to the International Monetary Fund.
Negotiations between Greece and its creditors broke off over the weekend with both sides blaming each other.
Some analysts remain bullish about the markets despite the recent sell off.
“The valuation of China stocks listed in Hong Kong remains reasonable, although no longer as cheap as they used to be,” said Ng Soo Nam, head of Asian equities at Columbia Threadneedle Investments.
Financial stocks led the declines in Hong Kong, as banks, in particular smaller ones, retreated amid fears that the mainland’s central bank may soon cut rates again, which would put fresh pressure on their net interest margins.
Bank of Chongqing lost 3.58 per cent to HK$7.81, while Minsheng Bank dropped 4.19 per cent to HK$10.06.
Company results continued to weigh on the local market, with Apple Daily parent Next Media shares losing 3.7 per cent to end at 78 HK cents on the back of its disappointing year-end figures.
A two-day meeting of the US Federal Reserve ending on Wednesday will be scrutinised for any indications on when rates will start to rise amid growing expectations it will be September.
Any rise in rates will initially hurt the markets as it will raise the cost of borrowing, leaving less money on the table for consumers and businesses to spend.