China stocks extend losses, HK drops six straight days as US rate cut hopes fade

HONG KONG: China and Hong Kong stocks fell on Monday, with Hong Kong shares logging a six-day losing streak, on worries over the widening US-China yield gap amid rising odds of fewer US interest rate cuts. At the close, the Shanghai Composite index was down 0.25% at 3,160.76 The blue-chip CSI300 index was down 0.27%, marking its fourth consecutive day of decline, with the financial sector sub-index down 0.53%.

Meanwhile, the consumer staples sector was up 0.44%, the real estate index rose 1.71% and the healthcare sub-index added 0.44%. In Hong Kong, the benchmark Hang Seng index closed lower by 190.15 points or 1% at 18,874.14. T0he Hang Seng China Enterprises index fell 0.79% to 6,843.71. Tech giants dropped 0.9%, leading the decline. The sell-off followed strong US jobs data on Friday that dealt a blow to hopes for more rate cuts and triggered a broad correction on Wall Street. “The market pullback may have more to go heading into the US Presidential inauguration on Jan. 20, with the dollar’s strength and a ‘high-for-longer’ outlook,” JPMorgan analysts, led by Wendy Liu, said in a note. ** On the other hand, China’s 10-year bond yield has tumbled over 100 basis points in a year to be around 1.6%, with the spread to US Treasury yields the widest in 24 years. This increasing gap, mainly driven by the drop in Chinese yields, has increased market pressure, especially on Hong Kong stocks, CICC analysts said. They expect trading to be range-bound in the Hong Kong market. On the macro data front, China’s exports gathered pace in December and imports recovered, closing out the year on a positive note although analysts believed that was helped by exports front-loading ahead of Donald Trump’s inauguration rather than demand recovery.