Hong Kong shares slipped and China sank to levels not seen since early 2009 on Friday, with both markets ending August in the red after first half corporate earnings disappointed and there seemed little chance of an imminent recovery. Turnover was lacklustre ahead of an annual meeting of central bankers in Wyoming later on Friday, with the market expecting Federal Reserve Chairman Ben Bernanke to keep expectations of monetary easing intact into September.
But not immediately take any measures. A scheduled quarterly rebalancing of the MSCI China index at Friday's close did little to help boost Friday's volumes. In August, investors parked money in shares of companies able to project resilient earnings growth in a sluggish economic environment.
"People have been generally defensive in August, with earnings visibility overriding other considerations, such as low valuations," said Alan Lam, Julius Baer's Greater China equity analyst. The CSI300 Index of the top Shanghai and Shenzhen listings shed 0.3 percent on Friday and 5.5 percent this month, suffering a third-straight monthly loss. The Shanghai Composite Index shed 2.7 percent in August.
The Hang Seng Index lost 0.4 percent to 19,482.6, holding above the 38.2 percent Fibonacci retracement of its rise from June lows to August highs at about 19,443. The benchmark shed 1.6 percent in August, its first monthly loss in three. "September will be very busy policy-wise, so there might be a switch into cyclical names. There are meetings in Europe and the US, but I don't expect China to do too much ahead of its National Congress meeting likely in October," Lam added.
Lam was referring to a meeting, to take place before year-end, that will mark the start of a once-in-a decade political leadership transition. New leaders do not typically make big changes in their first year, but could be forced into action if data suggests China could miss economic growth targets for the year, he said. Beijing is expected to post China's official manufacturing managers' index reading on Saturday. A Reuters poll sees the index easing to a 9-month low of 50 in August.
The state-run China Securities Journal reported on Friday that the combined first-half net profit of China's 2,453 listed companies dipped 0.38 percent from a year earlier to 1.01 trillion yuan ($159.07 billion). On Friday, Citic Pacific slumped 7.1 percent to its lowest since April 2009 after iron ore looked set to hit nearly three-year lows. In August, the stock had its worst performance in 10 months as Chinese steel producers shunned fresh cargoes in the face of waning demand.
Sany Heavy Industries dived 4 percent after missing forecasts with a 28 percent fall in second-quarter net profit, its biggest quarterly profit drop since 2008, as the country's economic slowdown led to a jump in unpaid bills. Within the Hang Seng Index, August's top performing stocks are skewed towards those that rely on the relative safety offered by the Chinese consumer as investors pulled money out of cyclical sectors most linked to a slowing economy at home and abroad.
Top performing stock Esprit Holdings rose almost 30 percent in the month as it rebounded from a year-low of HK$8.83 on July 25. Macau casino company and the latest entrant into the Hong Kong benchmark Sands China was the second-best performer, up nearly 20 percent. At the other end of the spectrum, shares of Li & Fung, exporter for top US retailers such as Wal-Mart, fell 18 percent, the worst monthly performance since the October 2008 peak of the financial crisis.
Suffering from limp demand from its core markets in the US, Europe and China, the company reported on August 9 a sharp drop in profits as well as shrinking margins sending investors scurrying for the exits and wiping out about a fifth of the company's value in a day.
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