Something snapped in Hong Kong on Thursday afternoon.
Things were going along fine on the heels of decent data out of China earlier in the session and then it all went off the rails in a bout of harrowing madness that sent the index tumbling as much as 2.2%…
…the Hang Seng very nearly had its worst day in 11 months:
So what accounts for that? Well, no one knows exactly. “Some bearish investors were looking for excuses to ‘kill the bulls’,” Kenny Wen, a strategist at Sun Hung Kai Financial told Bloomberg, adding that “the termination of callable contracts deepened the declines of the benchmarks.” That’s a reference to leveraged bets using derivatives known as bull/bear contracts.
Apparently, a lot of the callable bull contracts were tied to levels between 28,150 and 28,199, and they would have been terminated if the index fell below that level intraday – and it did just that. A HIBOR spike didn’t help. And of course there was Spain.
Here’s a summary of analyst “explanations” as compiled by Bloomberg…
Andrew Clarke, director of trading at Mirabaud (Asia) Ltd.
- Central bank governor Zhou Xiaochuan’s warnings on rising household debt and asset bubbles could have prompted selling in Hong Kong
Hao Hong, chief strategist at Bocom International Holdings Co.
- Investors are getting worried about Zhou’s comments on the continuation of deleveraging and tighter financial regulation
- “The details slowly emerged during the day. ZTE’s downgrade hit sentiment as well, and the poster children of the stock rally, including Geely, began to fall, taking the market down with them”
Ronald Wan, chief executive at Partners Capital International Ltd.
- Stocks had been rising because the market was expecting a message from the 19th Party Congress to support the market. To some extent people think there haven’t been any breakthroughs from the meeting, so the market is pulling back
- Blue chips and developers are facing larger selling pressure because in addition to mainland economic data, there’s concern Fed hawks are gaining an edge
- “If the U.S. hikes rates more quickly, blue chips will fall as Hibor rises”
Ken Chen, Shanghai-based analyst with KGI Securities
- Hong Kong stocks are already at relatively high levels so any bad news can trigger selling
- The US dollar has stabilized a bit recently, while China’s economy is showing signs of slowdown, putting pressure on the market
- Some big funds may have waited for others to lower their guard in the afternoon to sell on the economic concern
- The sudden drop in A shares in late afternoon trading also added to investor concerns as the market would’ve closed much lower if it weren’t for intervention by the national team
Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd.
- The market got a bit panicked on Spain concerns, and investors are selling stocks with big EU-exposure, like HSBC, as well as shares that had rallied a lot this year, due to geopolitical concerns
- Unsurprising that Hong Kong fell most among peers as it’s the first market Western investors would choose to cash out from, since it’s the most liquid in Asia and the best performer
But don’t worry, you’ve got some “cushion” here, as Hong Kong is up some 30% YTD: