Hong Kong shares tumble, China stocks and yuan regain footing

Hong Kong shares tumbled on Tuesday following a one-day holiday, playing catch-up with falls on Wall Street, while China stocks rebounded on Beijing's vows to support the struggling economy, with signs of bargain hunting seen in both markets.

Hong Kong shares tumbled on Tuesday following a one-day holiday, playing catch-up with falls on Wall Street, while China stocks rebounded on Beijing's vows to support the struggling economy, with signs of bargain hunting seen in both markets. The yuan found some footing after earlier slipping to a new 18-month low, as China's benchmark money market rates flirt with 16-month lows.

Hong Kong's benchmark Hang Seng Index fell as much as 4.1%, before recovering some losses to end morning trade 2.8% lower. Both China's blue-chip CSI300 Index and the Shanghai Composite Index rose 0.2% by the midday break.

"All eyes are on U.S. stocks," said Linus Yip, chief strategist at First Shanghai Group. "If Wall Street keeps falling, it would definitely be a drag on global markets, including Hong Kong and China."

The S&P 500 Index has dropped more than 3% this week amid fears of stagflation and rising U.S. interest rates. However, Yip points to signs that mainland money has been flowing into Hong Kong stocks over the past week due to bargain-hunting.

"Hong Kong shares have corrected much earlier than U.S. stocks, so their valuation is much lower," he said. Hang Seng trades at less than 10 times earnings, compared with more than 20 for the S&P 500.

China stocks rebounded after the country's central bank vowed on Monday further support for the slowing economy, and measures to boost confidence. Li Bei, hedge fund manager at Shanghai Banxia Investment Management, said that following forced selling, liquidation, and loss-cutting by local investors, China's bear market has entered its final stage.

"The bloody sell-off has knocked stock valuations to historic lows that priced in the worst economic outlook, and reflected utmost pessimism," she wrote. "The downward momentum has been nearly exhausted. Any positive element could trigger a robust rebound."

China's tech-heavy STAR50 index rebounded 2.5% on Tuesday, led by chipmakers, while start-up board ChiNext gained 1.4%. Yang Hongxun, the analyst at investment consultancy Shandong Shenguang, attributed the rebound to expectations of policy support for the sector following news Washington will step up sanctions against Chinese semiconductor companies.

"This will result in more government support to home-grown chipmakers," he said. Chinese yuan was changing hands at 6.7120 per dollar at midday, stronger than Monday's late session close, despite the People's Bank of China set the daily midpoint rate at the weakest since Oct. 30, 2020.

"The path of least resistance could remain to the downside in the near-term as China sticks to targeted policy supports and there is little moderation of restrictive COVID measures," analysts at Maybank said. "That being said, just as zero-COVID strategy is likely to be moderated only very gradually, officials may also prefer to step up on more growth supports from here on and that could keep a check on aggressive CNY declines."

China's seven-day repo rate, the benchmark money market rate, stood at 1.5479% on a weighted basis, flirting with the lowest level since late 2020, as the PBOC has pledged to keep liquidity reasonably ample and prioritize stability.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)