Although there were mixed influences on the Hang Seng index on Friday, the deterioration in risk conditions and more defensive global tone dominated trading with a significant daily retreat.
There was a more defensive tone surrounding US equity markets on Thursday with further selling in on-energy stocks as the Nasdaq index declined over 1.5% and the S&P 500 index also lost ground.
There was further uncertainty surrounding Sunday’s Italian referendum, which contributed to the defensive tone surrounding risk conditions.
Oil prices maintained a robust tone, which maintained some underlying support for Hong Kong stocks.
The rise in global bond yields maintained concerns surrounding higher Hong Kong yields, which would undermine the domestic property sector.
The dollar lost some ground against the yen, which helped trigger a decline in the Nikkei index, although a slightly softer US tone alleviated concerns surrounding Hong Kong competitiveness to some extent.
The yuan maintained a firmer tone on the day with the People’s Bank of China (PBOC) measures to tighten regulations on offshore loans helping to ease immediate concerns surrounding the risks of instability, although there were still important concerns surrounding the medium-term risks.
There was further optimism surrounding the potential for capital inflows from the mainland with the Shenzhen-Hong Kong Connect link due to come live on Monday. The main impact is liable to be on small-cap stocks and wider macro issues tended to have a bigger short-term impact on the market.
The Hang Seng index opened lower and, after a brief rally attempt, there was a steady erosion of support during the morning session. Ranges were relatively narrow following the break with a slight downward drift with expectations of a lower European open having an important role in undermining sentiment.
At the close, there was a decline of 313.41 points and 1.37% at 22,564.82, the sharpest decline for two weeks. All Hang Seng sector were in negative territory with the Commerce and Utilities sectors both falling over 1.6%. The Hang Seng China Enterprises index declined 1.12% on the day.
There is an important risk of very choppy trading conditions on Friday given the key risks events of Friday’s US employment report and Sunday’s Italian referendum.