Hong Kong Stocks Inch Closer to Bear Territory As China Manufacturing Decline Erodes Investor Faith in Economic Recovery

South China Morning Post2023-05-31

  • The official PMI manufacturing index declined to 48.8 in May from 49.2 in April, China’s statistics bureau said on Wednesday

  • The slump takes the Hang Seng index’s loss from the January peak to 19.9 per cent, just shy of bear-market territory

Hong Kong stocks tumbled after a government report showed manufacturing in China continues to contract, sparking renewed concerns over the nation’s wobbly economic recovery.

The Hang Seng Index fell 2.3 per cent to 18,173.59 as of 10.45am local time, the lowest since November 28. The slump takes the loss from the January peak to 19.9 per cent, just shy of bear-market territory. The Tech Index retreated 2.7 per cent, while the Shanghai Composite Index lost 0.8 per cent.

Gaming giant NetEase crashed 4.8 per cent to HK$132.80, food-delivery platform Meituan tumbled 4.1 per cent to HK$111.60 and JD.com lost 3.8 per cent to HK$125. Alibaba Group fell 2.3 per cent to HK$76.95, and Tencent Holdings declined 1.4 per cent to HK$311.80. Wuxi Biologics dropped 2.6 per cent to HK$40.60, and Longfor Group slipped 4.1 per cent to HK$15.

A government report showed the official PMI manufacturing index declined for a second month to 48.8 in May, China’s statistics bureau said on Wednesday, the lowest level since December last year. Readings under 50 signal a contraction. The non-manufacturing PMI, which measures business sentiment in the services and construction sectors, fell to 54.5 in May from 56.4 in April.

“The problem is [the recovery] is weaker than expected, meaning the market would need to adjust its assessment,” said Gary Ng, senior economist at Natixis. Global high interest rates and a destocking cycle continue to hit demand, and the pace of the services sector’s recovery is also slowing, showing signs of fatigue, he said.

Traders are now waiting for more stimulus measures to support the wobbly recovery, but Beijing might be more cautious this time around as policymakers are faced with a smaller policy toolkit, a structural collapse in the property sector, and a much more complicated geopolitical situation, Nomura analysts including Jing Wang wrote in a note on Wednesday.

Chinese companies listed in Hong Kong extended the rout on Tuesday, with the Hang Seng China Enterprises Index tumbling 2.3 per cent to slip into a bear market.

Most major Asian markets declined on Wednesday. Japan’s Nikkei 225 and Australia’s S&P/ASX 200 slipped by 1.1 and 1.2 per cent, respectively, while South Korea’s Kospi was little changed.

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