Hong Kong stocks slide further as worries about China's tepid economic recovery pours water over euphoria sparked by the US debt ceiling agreement

Hong Kong stocks extended losses as investor sentiment was dampened by a fall in China's industrial profits, a reflection of weak economic conditions, which cast a shadow over the optimism which followed the tentative agreement to raise the US debt ceiling.

The Hang Seng Index ended down 1 per cent at 18,551.11 at close of trade on Monday, hovering around six month lows and retreating from the day's highs which took the benchmark up by as much as 0.7 per cent. The Tech Index lost 1.2 per cent, although the Shanghai Composite, which is dominated by big state-owned companies, climbed 0.3 per cent.

Among the biggest losers was food-delivery giant Meituan, which slumped 8.1 per cent to HK$115.80, its lowest since March 2022. Tencent eased 2.9 per cent to HK$313.20 and e-commerce platform JD.com was down 1.7 per cent at HK$127.90. Electric vehicle maker BYD which dropped 2 per cent to HK$229.80 and Geely Auto which weakened 1.1 per cent to HK$9.18, also provided the drag.

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Helping offset some of the losses, search engine operator Baidu jumped 2.7 per cent to HK$119.70, while gaming giant NetEase surged 7.2 per cent to HK$139.90 after it announced robust earnings. China's biggest chip maker Semiconductor Manufacturing International Corporation (SMIC) climbed 2.8 per cent to HK$20, while PC maker Lenovo jumped 3.9 per cent to HK$7.42.

Weighing on sentiment was news about the world's second biggest economy. China's industrial profits fell 20.6 per cent in the January-April compared with the same period last year, although it was slower than the 21.4 per cent decline reported in the first quarter, according to data from the National Bureau of Statistics (NBS).

The weak economic data is still the market's biggest concern at the moment, analysts at BOCI Securities including Wang Jun said in a note on Monday. "The economic recovery is not well-grounded, and it's inevitable for the market to keep adjusting their expectation", leading to a prolonged correction, Wang said.

Meanwhile, the initial optimism was provided by the agreement to suspend the US$31.4 trillion debt ceiling between Republicans and Democrats, as the world's largest economy averted a historic default. US President Joe Biden and House Speaker Kevin McCarthy reached "a bipartisan budget agreement" after talks on Sunday.

"The great relief of the US debt ceiling resolution is at hand ... but markets are so far reacting cautiously," Clifford Bennett, chief economist at ACY Securities wrote in a note on Monday. The real relief may only come when the Bill passes in the House, he said.

The Hang Seng Index has retreated 18.2 per cent from a January peak as the China reopening trade started to lose momentum, erasing nearly US$600 billion from the city's stock market.

Key Asian markets advanced on Monday. Japan's Nikkei 225 Index gained 1 per cent and Australia's S&P ASX 200 climbed 0.9 per cent while South Korea's Kospi Index added 0.2 per cent.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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