Hong Kong stocks edge higher on cautious optimism over US debt-ceiling deal, but Chinese shares touch bear territory

Hong Kong stocks edged higher in volatile trade as sentiment remained cautious while traders looked for signs of confidence in China's economy and awaited the fate of the US debt-ceiling deal in Congress this week. A gauge tracking Chinese shares briefly entered bear market.

The Hang Seng Index climbed 0.2 per cent to 18,595.78 at the close of Tuesday trading, after sliding as much as 1.1 per cent earlier in the day and hitting a six-month low. The Tech Index added 1.5 per cent while the Shanghai Composite Index gained 0.1 per cent.

Tencent gained 1 per cent to HK$316.20, JD.com climbed 1.6 per cent to HK$130 and Alibaba strengthened 1.3 per cent to HK$78.80. Baidu surged 3.1 per cent to HK$123.40 after Beijing rolled out a new policy supporting the artificial-intelligence industry. EV maker BYD jumped 2.2 per cent to HK$234.40 after the company announced it will build another plant in Southeast Asia to tap the region's market.

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Limiting gains, gaming giant NetEase lost 0.3 per cent to HK$139.50 and WuXi Biologics declined 0.7 per cent to HK$41.70. Semiconductor Manufacturing International Corporation lost 0.4 per cent to HK$19.92.

The tentative debt-ceiling agreement, which US President Joe Biden and House Speaker Kevin McCarthy reached on Sunday, is now set to move to the Congress. The pair expressed their confidence on Monday that a deal to suspend the debt ceiling will pass both houses in coming days, while traders remained cautiously optimistic about the market outlook after the deal.

"Investors can breathe a sigh of relief that the US government is not going to default on its debt," David Chao, strategist at Invesco said in a note on Tuesday. But the deal will place on growth due to government spending cuts over the next couple of years, and the issuance of new treasury bills will likely drain market liquidity, he added.

Besides the debt-ceiling drama, local investors continue to reel from China's weak recovery, according to Willer Chen, a senior analyst at Forsyth Barr Asia. "Confidence on China economy is still low after it was shocked by the wake-up call of April macro data ... [The market] probably needs more time for confidence across the private sector and households to recover," he said.

A gauge tracking Chinese companies listed in Hong Kong slipped as much as 1 per cent on Tuesday, taking its decline from a January 27 high to 20.4 per cent to briefly enter bear-market territory. The Hang Seng Index slumped 18 per cent during the period as the market fretted over China's sluggish recovery, erasing over US$600 billion from the city's broader market.

Elsewhere, Zhejiang Prulde Electric Appliance surged 31 per cent to 46.20 yuan on its first day of trading in Shenzhen.

Major Asian markets were mixed. The Kospi in South Korea jumped 1 per cent while the Nikkei 225 in Japan added 0.3 per cent. The S&P/ASX 200 in Australia gained 0.1 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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