Yesterday, Hong Kong stocks tumbled 3% after returning from the long weekend, joining the global selloff amid deepening concerns about the world economy. Within the first hour of trading, the HSI fell through the 20,583 level which was its lowest close since 2013.
 
Investors’ sentiment were dampened after a sea of red was seen in the overnight market in the US. Nikkei also lost 3% when the HSI started trading yesterday. According to a report on Reuters yesterday, the Hong Kong Monetary Authority warned that “concerns of a slowdown in the Mainland economy and uncertainties over US monetary normalisation will continue to cast a shadow over” Hong Kong stocks for the rest of this year.
 
The benchmark gauge fell nearly 3.9% to hit its intra-day low of 20,368.12 before rebounding to trim some losses. The HSI eventually closed at 20,556, paring approximately 0.9% of its earlier losses during the second half of the session.
 
According to Bloomberg, the HSI is currently trading at approximately 8.8x Price/Earnings (P/E), its lowest since 2011. This makes the HSI look “cheap” as compared to other Asian indices such as the STI which is trading at 12.6x and the Nikkei 225, which is trading at 17.7x.
 
China’s economic data
 
Last Friday, China reported its industrial profits which came in significantly worse than the previous month. Industrial profits fell 8.8% year-on-year in August, versus the 2.9% decline seen in the prior period.
 
Tomorrow, China will be reporting their manufacturing PMI data which may give a better clue about the robustness of their manufacturing activity. Bloomberg has estimated a reading of 49.7 for the month of September.
 

Source: Macquarie Research - 30 Sep 2015