Hong Kong shares fell to a nine-month low on Monday as the property sector slid on fears of more government tightening measures, pushing the benchmark deeper into oversold territory and raising the risk of a short squeeze. Optimism over a possible resolution to Greece's debt woes faded and was offset by bearishness on the property sector, by far the biggest underperformer on the day after a top city official warned of growing risks of an asset price bubble.
The Hang Seng fell 0.4 percent, led by property bellwether Cheung Kong Holdings, controlled by billionaire Li Ka-shing, which dropped 3.8 percent. The property sub-index fell 2.2 percent to its lowest since July last year after Financial Secretary John Tsang's warning.
"Hong Kong's housing sector is unusually strong because of loose monetary policy in advanced markets such as Europe and the United States, ample liquidity, super-low interest rates and strong economic growth," Tsang said in his latest blog. "The risk of a bubble is increasing by the day."
The weak property sector pushed the Hang Seng's relative strength index down to 15.1, the lowest level since January last year and well below the threshold level of 30 that indicates whether a security is technically oversold. Bucking the weaker trend were shares of China's dominant Internet firm Tencent Holdings that ended 4.3 percent higher, recouping some of their slide in recent weeks.
Tencent shares are still down 11.5 percent this month on concerns around its e-commerce payment platform Tenpay following uncertainties over the "variable interest entity" ownership structure used by many Chinese Internet firms. On the mainland, the Shanghai Composite continued to slide, dropping 0.9 percent as tight conditions in the interbank market continued to trump attractive valuations.
The index's close for a second day below a cluster of supports around 2,660-2,680 from where it staged a sharp rally in January suggested it could face overhead resistance at those levels. Short-term money market rates spiked to 8 percent, primarily as a result of the latest hike in banks' reserve requirements that was effective on Monday. The liquidity squeeze in China's money market makes brokerages, fund managers and wealthy personal investors unable to obtain sufficient cash for investments in stocks.
A Hong Kong-based trader said that rates are likely to stay elevated for a little while longer, partly due to quarter-end demand for funds from institutions as well as strict monitoring of loan-to-deposit ratios. That could be negative for smaller, leveraged banks such as China Citic Bank, which lack fee income, said the trader.
China Citic Bank fell 1.5 percent. The extended slide in Chinese shares that have seen the benchmark retreat about 15 percent in the past two months have pushing valuations to attractive levels, prompting analysts to recommend that investors position for a rebound. "After the two, short-lived rallies in the MSCI-China in September-October 2010 and March-Apr 2011, investors are a bit gun-shy, in our view," said Wendy Liu, head of China and Hong Kong research at RBS in Hong Kong.