On Thursday, Hong Kong equities had their worst day in four months, after Goldman Sachs downgraded key Chinese banks due to local government debt worries and the US Federal Reserve issued a hawkish outlook.The Hang Seng (HSI) Index fell 3% on the day, the most since early March. The benchmark is Asia Pacific's leading decliner.After …
On Thursday, Hong Kong equities had their worst day in four months, after Goldman Sachs downgraded key Chinese banks due to local government debt worries and the US Federal Reserve issued a hawkish outlook.
The Hang Seng (HSI) Index fell 3% on the day, the most since early March. The benchmark is Asia Pacific’s leading decliner.
After Goldman Sachs downgraded numerous Chinese banks, financial stocks led the sell-off.
The Hang Seng Mainland Banks Index, which analyzes the performance of mainland Chinese banks listed in Hong Kong, fell 6.5%. It was the biggest daily drop since February 2018.
In a long study on China’s banking sector published this week, Goldman Sachs downgraded the Industrial and Commercial Bank of China and the Industrial Bank from “buy” to “sell,” while lowering the Agricultural Bank of China from “neutral” to “sell.”
It also issued the Bank of Communications and Huaxia Bank a “sell” rating.
According to the Wall Street firm, these banks face earnings concerns as a result of their exposure to Chinese local government debt.
According to other analysts, China’s outstanding government debts topped 123 trillion yuan ($18 trillion) last year, with roughly $10 trillion owing by riskier local government financing platforms.
Many regional governments’ budgets have been depleted by Chinese leader Xi Jinping’s zero-Covid campaign, after they spent billions of dollars on periodic Covid lockdowns, mass testing, and quarantine facilities prior to last December’s policy U-turn.
The Fed’s aggressive rate outlook also influenced sentiment in Hong Kong markets.
According to the minutes released on Wednesday, Fed officials predict further rate hikes this year as inflation continues “unacceptably high.”
“We believe the odds of a rate hike on July 26 have increased assuming the upcoming employment and CPI reports continue,” said Stephen Innes, managing partner of SPI Asset Management.
He said that persistent geopolitical tensions, ongoing fears about US-China decoupling, and China’s domestic growth issues continue to reinforce bearish arguments about the country’s risk markets.
US Treasury Secretary Janet Yellen will arrive in Beijing on Thursday afternoon as part of the Biden administration’s continuous efforts to repair ties with China.
In other news, Japan’s Nikkei 225 (N225) lost 1.7%. The Kospi in South Korea fell 0.9%. The Shanghai Composite Index fell 0.5%.
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