Hong Kong Stock Selloff Quickens as Year's Top Performers Slide

(Bloomberg) -- Hong Kong's benchmark index fell the most in 13 months as losses steepened in some of the year's top performing stocks, including Geely Automobile Holdings Ltd. and AAC Technologies Holdings Inc.

The Hang Seng Index slid 2.1 percent to its lowest close since Oct. 26. The gauge has dropped in seven of the past eight sessions and is more than 5 percent below a decade high reached on Nov. 22. The selloff has come amid concern inflows from mainland China will slow and as global equity markets retreat. Geely, AAC and Sunny Optical Technology Group Co., which have led gains on the index this year, plunged more than 7 percent on Wednesday.

Stocks in Hong Kong have turned into some of the world's worst performers since the Hang Seng Index's peak last month as investors cut holdings in shares that saw extreme rallies this year. Tencent Holdings Ltd., which accounts for almost a third of the benchmark's 2017 gain, has tumbled 17 percent from its record high last month, wiping out $78 billion in value.

Investors are “locking in profits earlier than usual for the year and not opening any new positions until the new year,” said Andrew Clarke, director of trading at Mirabaud (Asia) Ltd.

Clarke said the profit-taking could last a while, though some investors may look at stocks like Tencent after the correction and decide to go long for next year. “Eventually, as profit-taking subsides, buying for the new year will appear as people look toward 2018,” he said.

The H-share index in Hong Kong slid 2.8 percent Wednesday -- like the Hang Seng Index, that was the biggest drop since Nov. 9 last year. Every one of the 40 members on the index declined, led by Guangzhou Automobile Group Co.'s 9 percent loss. The Shanghai Composite Index pared a 1.5 percent decline to close down 0.3 percent, below the 3,300 level for the first time since August. The Shenzhen Composite Index and ChiNext Index recovered in the last hour of trade to close higher.

Daniel So, a strategist at CMB International Securities Ltd., remains bullish on Hong Kong equities, saying this correction shouldn't last too long and the Hang Seng Index may rise to 35,000 next year, while the H-share index might reach 14,400. That represents gains of more than 20 percent for both.

Chinese shares weren't alone in their suffering Wednesday, as other markets throughout the region also tumbled. Japan's Nikkei 225 index and South Korea's Kospi were among the hardest hit.

“Profit-taking trades are putting strong pressure on the markets,” said Ken Peng, an investment strategist at Citi Private Bank in Hong Kong. “This is especially the case in Hong Kong, where equities are among the strongest in Asia this year.”

Peng said a slump in technology stocks in the U.S. is weighing on Asia, and investors are also worried about tighter liquidity and tougher regulations in China. He added that tension between North Korea and the U.S. could be an issue as well.

“The market is nervous but it hasn't reached a point that there's a sense of panic,” Peng said. “If a sense of panic appears, I would say it would be a great buying opportunity, because the cycle of global economic recovery isn't over yet, meaning that stocks still have room to climb. The end of the cycle will appear in 2019 or 2020.”

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net, Tian Chen in Beijing at tchen259@bloomberg.net, Jeanny Yu in Hong Kong at jyu107@bloomberg.net, Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies, Robin Ganguly

©2017 Bloomberg L.P.

With assistance from Amanda Wang, Tian Chen, Jeanny Yu, Kana Nishizawa