Hong Kong shares fell on Friday, snapping a four-day winning streak, as investors cut long positions in cyclical stocks ahead of US jobs data that are expected to provide clues on whether the Federal Reserve will take further action to support the economy.
The Hang Seng Index dropped further below 21,000, a level seen capping gains in the near term, as market players took profits on the week's top performers ahead of a long US weekend and as European stocks sold off. "You're talking about a rally from 19,000 to 21,000, a big rally of about 10 percent in a month," said Hong Hao, a global strategist with CICC in Beijing, referring to the Hang Seng. "So 21,000 will be very strong resistance. In this kind of market, people will start taking profits as soon as it hits that level."
The Hang Seng ended down 1.8 percent on the day at 20,212.9 points after the short covering rally ran out of steam and turnover slipped below average on Friday. For the week, the benchmark ended up 3.2 percent, clawing back some of the stiff losses suffered during a global market rout in early August.
Between the Hang Seng's close on August 4th at 21,884.74 and the open on the 5th at 20,939.40, a gap opened up on the price charts. The bottom of the gap around 21,000 was resistance that repelled the index on Thursday. The biggest drags on the Hang Seng on Friday were the top performers that helped the benchmark test 21,000. In the past five sessions before Friday, CNOOC Ltd gained 9 percent. On Friday, it lost 3.3 percent.
The biggest constituent stocks on the Hang Seng also saw their own rallies stall on Friday. HSBC Holdings Plc, with a 14.2 percent weight on the Hang Seng, lost 0.4 percent on the day, remaining near a two-year low. It slumped more than 12 percent in August, underperforming the 8.5 percent loss on the Hang Seng for the month.
With debt problems in Europe likely to continue to fester, and the global economy slowing, the continent's largest bank is not expected to rise much from its current levels, which will keep the Hang Sang below 21,000 in the near term. Esprit Holdings Ltd saw its worst single-day performance in two years after the Europe-focused clothing retailer warned late on Thursday of a sharp drop in full-year profit due to one-off restructuring costs.
It plunged by more than 10 percent, hitting its lowest in about three weeks, topping losses in Hong Kong and the top drag on the Hang Seng benchmark. The Shanghai Composite Index shed 1.1 percent on the day to finish at 2,528.3 as A-share turnover sank to its lowest in nearly 14 months. The index has shed 3.2 percent this week, its fourth weekly loss in five.
Energy and property names were among its biggest drags as investors shunned sectors that are growth-sensitive and after mainland media reported average housing prices in 10 cities declined in August, the first drop in almost a year. China Petroleum & Chemical Corp (Sinopec) and China Shenhua Energy Co Ltd lost 1.5 and 1.6 percent respectively. Poly Real Estate lost 3.4 percent.
Market watchers said moves by the central bank late last week to further tighten money supply crimped flows into mainland equity markets this week and could limit any upside for the Shanghai benchmark. In a note to clients on Thursday, Julius Baer said while short-term interbank borrowing rates have rebounded after the announcement of the new measure, the liquidity drain and market disappointment of no monetary relaxation are expected to keep investors cautious in the near term. Banking names also suffered on Friday, with mid-sized names such as China Minsheng Bank, expected to be more affected by Beijing's latest move, down over 2 percent, compared to Industrial and Commercial Bank of China's 0.7 percent loss.