Hong Kong shares snap six-day rally as China banks, AAC slip
HONG KONG (Nikkei Markets) -- Hong Kong shares halted a six-day winning streak on Tuesday as some investors considered market valuations to have risen too much too fast, with Chinese banks and AAC Technologies Holdings leading declines.
The Hang Seng Index fell 0.1% to 25,335.94, following an extended rally which pushed the gauge's price-to-earnings ratio to its highest level since November 2015 on Monday. China Construction Bank (CCB), the biggest contributor to the decline by points, fell 0.6%. AAC slumped 2.3% in its fourth straight retreat after short-seller Gotham City Research questioned the Apple-supplier's accounting practices. China Petroleum & Chemical (Sinopec) slid 1.4% from a five-week high.
The pullback Tuesday came despite strong inflows from mainland investors and a continued rebound on Chinese exchanges, with some investors shifting focus to the likelihood that the U.S. Federal Reserve will raise interest rates next month. Fed futures are pricing in a three-in-four chance the central bank will increase rates next month, according to the CME FedWatch Tool. Chinese investors purchased a net HK$3.2 billion ($411 million) via the Shanghai and Shenzhen exchange links on Tuesday.
"The Hong Kong market is looking a bit toppish to me in the immediate term as there is a Fed rate hike looming in June," said Louis Tse, asset management director at Hong Kong-based VC Brokerage.
The Shanghai Composite ended 0.8% higher, a fourth day of gains. Mainland equity markets had underperformed regional markets this quarter as tepid economic data indicated China's economy was losing momentum, while efforts by policy makers to curb risky lending practices hurt liquidity. Some traders said mainland stocks may not yet be out of the woods.
"While mainland markets have seen a bit of a recovery, the recent selloff in A-shares does not look over to me," Tse added.
The yuan traded onshore was little changed at 6.8894 against the dollar. The People's Bank of China on Tuesday set guidance for the currency at 6.879 per dollar, its strongest level in three weeks.
Cathay Pacific Airways shed 1.9% after MSCI said it will remove the airline's stock from its Hong Kong index at the end of this month. During Tuesday's midday break, Cathay reported a 3.2% increase in April passenger traffic for the group.
China Pacific Insurance fell 0.7%. The insurer said gross premium income for the January to April period climbed 26%.
Selfie app-maker Meitu jumped 4.1% after being added to the MSCI China index.
Cosco Shipping Holdings advanced 1.5% after its units signed an agreement with Kazakhstan's KTZ Express to acquire a 24.5% stake in KTZE-Khorgos Gateway for 262 million yuan ($38 million).
China Vanke slid 1.9%. The property developer's Beijing unit will invest up to 1.2 billion yuan to set up a 5.4 billion-yuan fund, China Vanke said.
Glory Flame Holdings skidded 6.2% after saying net loss more than doubled in the first quarter.
-- Nimesh Vora and V.Phani Kumar
--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.