Hong Kong market flirts with bear territory as China manufacturing decline erodes investor faith in economic recovery

Hong Kong stocks fell but avoided ending the day in bear-market territory 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 finished down 1.9 per cent to 18,234.27 at the close of Wednesday trading after tumbling as much as 3 per cent during the day. The gauge has declined 19.6 per cent from a January 27 high, just shy of the 20 per cent threshold for bear-market status. The Tech Index retreated 2 per cent, while the Shanghai Composite Index lost 0.6 per cent.

Gaming giant NetEase tumbled 4.9 per cent to HK$132.60, food-delivery platform Meituan fell 5.3 per cent to HK$110.20 and JD.com lost 3.2 per cent to HK$125.90. Property developer Longfor slipped 3.7 per cent to HK$15.06 while peer Country Garden retreated 3.4 per cent to HK$1.44. China's big three oil giants - PetroChina, Sinopec and CNOOC - slumped by 3.1 to 5.4 per cent on economy worries.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

A government report showed the official manufacturing purchasing managers' index (PMI) declined for a second month to 48.8 in May, China's statistics bureau said on Wednesday, the lowest level since December last year. 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 1.9 per cent to slip into a bear market.

Global fund managers have sold over 12 billion yuan (US$1.7 billion) of onshore stocks so far in May, according to Stock Connect data. They are on track to turn net sellers of Chinese shares for a second month, the longest sell-off since October last year.

Elsewhere, US lawmakers are rushing to lift the US$31.4 trillion debt ceiling to avert a potential default. The tentative deal was approved by the House Rules Committee on Wednesday, and will move on to the full House of Representatives for debate.

Most major Asian markets declined on Wednesday. Japan's Nikkei 225 and Australia's S&P/ASX 200 slipped by 1.4 and 1.6 per cent, respectively, while South Korea's Kospi declined 0.3 per cent.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.