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Nikkei Markets

Reduced US rate cut expectations weigh on Hong Kong shares

New Shanghai Star Market sees some tech stocks triple in early action

HONG KONG (Nikkei Markets) -- Hong Kong shares were leading losses in the region on Monday, as expectations for a smaller rate cut by the U.S. Federal Reserve and ongoing protests in the city weighed on sentiment.

The Hang Seng Index had lost 0.8% to 28,542.59 by noon after rising 1.1% on Friday. Stock exchange operator Hong Kong Exchanges & Clearing and insurer AIA Group fell 1.8% and 1%, respectively, and were among the biggest contributors to losses for the gauge by points.

The Nikkei Asia300 Index was down 0.4%. Declines in the region came after U.S. equities fell on Friday amid uncertainty over the quantum of the Fed's widely expected rate cut. Wagers on a 50-basis-point cut had risen after New York Federal Reserve President John Williams during a speech on Thursday stressed the importance of acting "quickly to lower rates at the first sign of economic distress." Later, a New York Fed representative said the speech was academic in nature and "not about potential policy actions," according to Reuters.

The Fed is likely to only deliver a 25-basis-point cut in July because a 50-basis-point cut "could trigger panic," said Daniel So, a strategist at CMB International, adding that a retreat after Friday's gains on the Hang Seng Index is "normal."

The probability of a 50-basis-point interest rate cut by the Fed this month is currently at about 22.5%, according to CME's FedWatch Tool, down from about 44% on Friday in Asia. The data indicates 100% probability of a rate cut at the meeting on July 30 and 31.

"The local clashes over the weekend are having an impact on market sentiment as well," CMB's So said.

Anti-government protesters took to the streets once again in Hong Kong as they continue to demand the complete withdrawal of a controversial extradition bill. Hong Kong Chief Executive Carrie Lam in June announced the suspension of the bill, and earlier this month reiterated that the bill was "dead." Opponents of the bill are also demanding Lam's resignation.

The demonstrations on Sunday turned violent as local police reportedly fired tear gas canisters at protesters, while a large group of men in white shirts later on used sticks to attack people that they believed were returning from protests.

In the mainland, the Shanghai Composite Index slipped 0.6%. Meanwhile, some of the 25 stocks debuting on Shanghai's newly launched technology board called the Star Market more than tripled. Among big gainers on the board, Raytron Technology was up 160%, while Advanced Micro-Fabrication Equipment surged 209%.

Great Wall Motor fell 1.9% in Hong Kong after the Chinese carmaker said it expects profit for the first half of the year to have fallen 58.6% from a year ago, and trimmed its 2019 sales volume target to 1.07 million units from 1.2 million units. Jefferies, Credit Suisse and Bocom International cut their price targets on the stock after the announcement.

Electric carmaker BYD added 0.9% after saying it signed a cooperation agreement with Japanese auto giant Toyota Motor to jointly develop battery-driven electric sedans and sport-utility vehicles in China.

Television marketing services company Sinomedia Holding tumbled 12.7% after saying it expects to report a net loss for the six months ended June 30, compared with a profit a year ago.

Mainland property developer China Aoyuan Group slipped 3.5% after saying it agreed to buy a 13.9% stake in Aeon Life Insurance Company for 3.26 billion yuan. The company also said it expects core net profit for the six months ended June 30 to have increased more than 50% from a year ago.

Property management company Aoyuan Healthy Life Group advanced 4.4% after forecasting an over 85% jump core net profit for the six months ended in June.

China Yuhua Education added 7.3% after the company said its unit was buying a 90% stake in Jinan Shuangsheng Education Consulting for 1.49 billion yuan. Jinan Shuangsheng Education Consulting holds the entire sponsorship interest in China's Shandong Yingcai University.

--Amy Lam

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