Hong Kong stocks drag Asia down on Wednesday, as shares in the city plunged amid a broader regional sell-off. The Hang Seng Index was the worst performing major bourse, sinking 2.47% to finish at 16,993.44. The sharp losses in Hong Kong set the tone for a risk-off day across the Asia-Pacific region.
Driving the fall in Hong Kong was yet another disastrous day for the city’s previously high-flying technology and internet stocks. Shares of food delivery giant Meituan dove over 12% to hit their lowest level since March 2020, after the company warned of slowing revenue growth in its latest earnings call. Meituan’s single-day rout spilled over to drag down other Hong Kong-listed Chinese tech leaders like Alibaba, Xiaomi, and Tencent.
The $300 billion selloff seen in shares of Chinese tech firms over the past two days speaks to just how heavily Hong Kong’s Hang Seng index relies on the performance of its new economy stocks. Meituan, Alibaba, Tencent and other tech names make up nearly half the benchmark’s weighting. So when they plunge in tandem, it frequently foreshadows broader losses across Hong Kong equities.
That was precisely the story on Wednesday, with the Hang Seng diving from the opening bell. Meituan’s post-earnings warning sparked fears that tighter regulations, supply chain issues, and dampening consumer demand may weigh on China’s internet sector into 2023. Traders dumped Chinese tech shares listed in Hong Kong in response.
Selling pressure snowballed by midday, sending the Hang Seng to session lows. When combined with slight afternoon gains that failed to stick, the bloodletting left Hong Kong stocks with their steepest single-day fall since mid-October.
The panic rapidly spread beyond Hong Kong too, infecting regional indexes across Asia. While Japan’s Nikkei 225 and Australia’s S&P/ASX 200 posted milder losses of 0.26% and 0.08%, respectively, the gloom originating in Chinese tech names left investors everywhere on edge. Stock benchmarks in South Korea and Taiwan dropped in excess of 1% each, despite little news out of either market to justify such sizable declines.
In essence, Hong Kong’s Hang Seng led Asian markets lower in a classic risk-off move built on the back of growth and regulatory fears in China’s battered internet sector.
Chinese tech firms delivered outsized returns for global investors over the past decade as e-commerce, gaming, fintech, and online services took flight among China’s vast population. However, Beijing’s crackdowns on internet leaders around data security, anti-trust rules, and private tutoring upended the bull case in 2021. The sell-off accelerated in 2022 amid China’s property market crisis, supply chain troubles, and Covid outbreaks undermining economic activity.
Three interest rate cuts by China’s central bank have done little to convince investors that the bottom is near or a rebound awaits in 2023. Meituan’s guidance warning suggests further earnings pain lies ahead for battered Chinese tech giants, especially in e-commerce where manufacturing shutdowns and depressed consumer sentiment are combining to soften sales.
If names like Alibaba and Pinduoduo follow Meituan’s lead by reducing guidance in upcoming quarterly reports, confidence in China tech could crater further. And with such firms making up the backbone of Hong Kong’s benchmark Hang Seng, index declines seen this week may represent merely the beginning.
For Asia bulls hoping to rally into year-end, a lot depends on what emerges from December’s Federal Reserve meeting. Comments from Lael Brainard Wednesday sparked optimism that smaller rate hike may follow in the months ahead. But contradictory warnings from Fed hawks indicate monetary tightening is far from over in America.
How the Fed walks the line between those views may dictate whetherAsian equities can mount a late 2022 rebound, or flirt with the lows seen during autumn’s bout of volatility. With the direction of both hanging in the balance, the path of least resistance for Hong Kong stocks and wider Asia remains south.
In conclusion, plunging shares among Hang Seng heavyweights in the Chinese technology space catalyzed a down day for equity benchmarks across Asia. Losses accelerated into the close, underscoring the extent to which China’s internet firms – beleaguered as they may be – still sway investor risk appetite throughout the region. If the post-earnings wreckage witnessed in Meituan foreshadows similar downward guidance from Alibaba, Tencent and others by year-end, the bottoming process may drag on. That spells peril for Hong Kong stocks with the most to lose – and by extension wider Asia – as developments out of China and the Fed gather pace.