HK plunge a Black Monday reminder
Top News | Joyce Chen and Bloomberg 20 Oct 2017
Hong Kong shares plunged yesterday on the 30th anniversary of a market crash known as Black Monday.
The drop was led by some of the year's best performers, and traders cited concerns ranging from the risk of China deleveraging to a surge in the city's interbank rates, although Hang Seng Index night futures rebounded.
The index lost as much as 2.2 percent or 617 points, which is the biggest retreat since last November. The gauge ended the session down 1.9 percent, or 552 points, to 28,159.09, with 1,400 stocks falling.
The Hang Seng Index Futures for October also went down by 0.05 percent to 28,212 at 9.43pm.
Meanwhile, the US market slipped at opening yesterday, with the Dow Jones falling 91 points to 23,067 at 9.45pm (Hong Kong time) and the Nasdaq dropping 52.16 points. The S&P 500 Index also decreased 0.38 percent to 2,552.
Black Monday refers to October 19, 1987, when stock markets around the world crashed, shedding huge value in a short time.
In the US market, futures once fell 1.7 percent after rising almost 3 percent in the past four sessions.
Gasoline stockpiles expanded for a fourth week, while distillate supplies rose for the first time since August, US government data showed.
Geely Automobile Holdings (0175), which has more than tripled this year, plunged 7.5 percent, while Hong Kong developers declined after three-month bank borrowing costs climbed the most this year.
Telecoms equipment maker ZTE Corporation (0763) sank 11 percent after disappointing preliminary results.
HSBC Holdings (0005) fell 1.3 percent to HK$76 while technology giant Tencent (0700) slumped as much as HK$9, and closed at HK$346.20. These two declines were enough to drag the market down by 200 points.
Mainland banks turned down, with Industrial and Commercial Bank of China (1398) dropping 3.16 percent and China Construction Bank (0939) falling 2.73 percent to HK$6.78.
The decline came as China's political elite gather in Beijing for a twice- a-decade meeting.
Volatility index VIX, also known as the Panic Index, jumped 12 percent to 11.35, the highest in five weeks.
The turmoil broke a sense of bullish calm that has prevailed in Hong Kong's stock market this year, with the benchmark index jumping 31 percent by Wednesday in Asia's best performance.
The index last week climbed above its 2015 high to return to levels not seen for a decade. Concern that Hong Kong borrowing costs will rise further added to the selling, said Ronald Wan, chief executive at Partners Capital International Ltd in Hong Kong.
Yesterday the three-month Hong Kong Inter-Bank Offered Rate rose 3.6 basis points, the most since December, after the Hong Kong Monetary Authority drained HK$8 billion of funds from the interbank system on Wednesday by selling exchange fund bills.
In mid-December, when three- month Hibor jumped 23 basis points in a week, the Hang Seng Index sank 3.3 percent in the same span.
Kenny Wen, a strategist at Sun Hung Kai Financial, said the intraday termination of callable bull and bear contracts - a popular derivative in Hong Kong that allows investors to make leveraged bets - exacerbated the decline.
The highest concentration of bullish contracts on the Hang Seng Index was among those with call prices of 28,100 to 28,199 index points, Credit Suisse Group data show. The gauge fell as low as 28,094.54 yesterday.
"Some bearish investors were looking for excuses to 'kill the bulls,'" Wen said. "The termination of callable contracts deepened the declines of the benchmarks."
This plunge is just one of the corrections this year, and the market is not seen as too bad, said the director of Ample Finance Group, Alex Wong Kwok-ying.
The Hong Kong market this year has the pattern of rising slowly each day and dropping rapidly, though it has accumulated a total of 27 percent this year, added Wong.
Louie Shum Chun-ying, senior stock analyst, said this is not "real market slumping," and more market volatility is expected.
Meanwhile, investors should avoid 5G concept related stocks, warned head of research of Bright Smart Securities (1428) Stanley Chik.
