Thu, Jun 13, 2019 - Page 10 News List

HK stocks roiled by rate squeeze amid protests

TIGHTER LIQUIDITY:Protests to stop passage of a bill allowing extradition to the mainland sent the HIBOR surging amid concern over potential capital outflows

Bloomberg

Riot police fire tear gas toward protesters outside the Legislative Council in Hong Kong yesterday.

Photo: AP

Hong Kong stocks tumbled and the currency soared as interbank interest rates jumped amid protests that closed roads in the territory’s financial district.

The Hang Seng Index fell 1.7 percent at the close, with local property developers among the biggest losers, while the Hong Kong dollar strengthened as much as much as 0.26 percent, the largest gain in seven months.

The one-month interbank borrowing cost, known as the Hong Kong Interbank Borrowing Rate (HIBOR), rose 29 basis points to about 2.42 percent, the highest since 2008.

While some analysts attributed the tighter liquidity to seasonal demand for cash, such as dividend payments, others said the protests — aimed at preventing the passage of a bill allowing Hong Kong to extradite its residents to mainland China — could be spurring concern about potential capital outflows.

The squeeze has driven up the cost of shorting the Hong Kong dollar, which also contributed to the one-day jump.

“Recent political events in Hong Kong are affecting investors’ confidence on the future of the city,” Springwaters Financial Securities (泓瑞源金融證券) Hong Kong-based strategist Sam Chi Yung (岑智勇) said by telephone. “A stronger local dollar may hurt exporters, while surging HIBORs mean higher funding costs for companies with more debt.”

The secretariat of Hong Kong’s Legislative Council postponed yesterday’s debate to an unspecified time after thousands converged on the legislature, blocking roads in tactics similar to the 2014 Occupy demonstrations.

Police fired tear gas in the afternoon, leading to some apparent injuries among protesters and officers.

US House of Representatives Speaker Nancy Pelosi threatened legislative action in the US Congress to “reassess” whether Hong Kong is sufficiently autonomous.

New World Development Co (新世界發展), Wharf Real Estate Investment Co (九龍倉置業) and Sun Hung Kai Properties Ltd (新鴻基地產) all fell at least 3.1 percent.

Developers are sensitive to Hong Kong’s rising borrowing costs and rallied earlier in the year on expectations the US Federal Reserve would cut interest rates.

Chinese Internet giant Tencent Holdings Ltd (騰訊) retreated 2.1 percent as the biggest drag on the Hang Seng China Enterprises Index, which lost 1.2 percent.

Sunny Optical Technology Group Co (舜宇光學) dropped 6.1 percent and AAC Technologies Holdings Inc (瑞聲科技) lost 3.4 percent.

Citigroup Inc cut its price target on Sunny, citing risks from a US ban on Huawei Technologies Co (華為).

Hong Kong’s two benchmarks were Asia’s worst performers in an otherwise quiet session in the region. The Hang Seng Index was only just recovering from a rout that had made it one of the world’s worst performing major benchmarks last month.

“Uncertainty on local policies will confuse investors and affect the flows in and out of Hong Kong stocks,” Partners Capital International Ltd (博大資本國際) CEO Ronald Wan (溫天納) said. “Investors now need to ponder whether or not to pull out of the market given the local events and global factors, including the trade war.”

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