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Nikkei Markets

Hong Kong stocks drop to two-week low after Fed meeting

Apple supplier AAC Technologies extends rally amid optimism over iPhone sales

HONG KONG (Nikkei Markets) -- Hong Kong stocks dropped to a two-week low on Thursday after projections by officials at the U.S. Federal Reserve signaled a smaller chance for further interest-rate cuts.

The Hang Seng Index fell 1.1% to 26,468.95, losing ground for a fourth straight day. Forty-four of its 50 constituents ended lower. Financial companies, which tend to report smaller profits in a falling interest-rate environment, were among the biggest contributors to the losses, while property developers were relatively resilient. Shares of pan-Asia insurer AIA Group and Hang Seng Bank dropped 3% and 2.4%, respectively.

A Hang Seng gauge of large developers fell 0.8%, with industry leader Sun Hung Kai Properties slipping 0.6%.

The Fed on Wednesday cut its policy interest rate by 0.25 point to a range of 1.75% and 2%, matching expectations. Projections by its officials, however, clouded the market's outlook for further loosening. A so-called dot-plot by the Fed's officials showed seven officials anticipate one more rate reduction by December, five expect no further cuts and five foresee a rate increase.

The Fed's dot-plot projections show a "rather big discrepancy" with market expectations, said Ricky Huang, an analyst at Luk Fook Financial Services in Hong Kong. "You can see the Fed is divided, so investors are a bit disappointed."

Still, impact on the market was likely to be a short-term affair as global markets were still heading higher, he added.

Meanwhile, Shane Oliver, head of investment strategy and chief economist at AMP Capital, said the Fed's dot-plot is probably more dovish than it looks.

"It is likely that the seven who see a cut include the Fed leadership of Powell, Clarida and Williams and are mostly voting members, whereas there is likely a lot of non-voters in the five who see no change and the five who see a hike," he said, referring to Fed Chairman Jerome Powell, Vice Chairman Richard Clarida and Federal Reserve Bank of New York President John Williams.

The Hong Kong Monetary Authority on Thursday said it was lowering its own benchmark rate by 0.25 point, following the Fed's decision. Policy rates in Hong Kong move in tandem with those of the Fed, because the city's currency is pegged within a range of 7.75-7.85 against U.S. dollar.

The Hong Kong dollar was little changed at 7.8295, while the yuan traded onshore in China weakened 0.2% to 7.0959 against the U.S. dollar. The Shanghai Composite Index closed 0.5% higher.

AAC Technologies Holdings, a supplier to U.S. smartphone giant Apple, gained 5.9% in Hong Kong to extend its 10.2% surge the previous day, on lingering expectations for upbeat iPhone sales following the launch of new models by the U.S. company earlier this month. Among other iPhone suppliers, Cowell e Holdings gained 0.8%.

Shares of Esprit Holdings gained 3.5% after the apparel retailer late on Wednesday reported a narrower loss for the year ended June 30 than in the previous fiscal year.

China Shenhua Energy declined 1% following a 5.2% fall in August coal sales volume.

Property developer Winfull Group Holdings fell 1.2% after saying it expects to report a significant decrease in net profit for the year ended June 30 from the preceding year.

-- Benny Kung

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