"Kill The Bulls" - Traders Puzzled By Last Minute Hong Kong Crash

Is this what sparked the global slide in stocks?

After months of 'calm', well-managed market gains, Hong Kong's Hang Seng Index crashed almost 600 points in the last few minutes of the day - the biggest drop since the day of the US election in Nov 2016...

Some big movers included Geely Automobile Holdings, which has more that tripled this year, plunged 7.5 percent, while Hong Kong developers declined after three-month bank borrowing costs climbed the most this year; and ZTE Corp., a telecoms equipment maker, sank 11 percent after disappointing preliminary results.

The crash - over 2.2% - was not driven by the disappointing China GDP growth data per se (it was not a reactionary drop) but perhaps was triggered by comments about household debt and asset bubble risk by PBOC governor Zhou.

As Bloomberg noted, "the turmoil broke a sense of bullish calm that’s prevailed throughout this year in Hong Kong’s stock market, with the benchmark index jumping 31 percent through Wednesday in Asia’s best performance." Tracking other indexes, the Hang Seng last week climbed above its 2015 high to return to levels not seen for a decade, mostly due to window dressing effort by various central banks who intend on keeping regional stocks as high as possible during the 19th Chinese Communist Congress.

Here’s what some analysts had to say about the sharp selloff (via BBG):

Kenny Wen, strategist at Sun Hung Kai Financial Ltd.

  • A lot of callable bull contracts are tied to levels between 28,150 and 28,199, and they’ll be terminated if the index falls below that level in intraday trading
  • Some bearish investors were looking for an excuse to “kill the bulls”
  • The spike in Hibor or jitters about Spain may have prompted some investors to sell, and the termination of callable contracts exacerbated the declines

Andrew Clarke, director of trading at Mirabaud (Asia) Ltd.

  • Central bank governor Zhou Xiaochuan’s warnings on rising household debt and asset bubbles could have prompted selling in Hong Kong

Hao Hong, chief strategist at Bocom International Holdings Co.

  • Investors are getting worried about Zhou’s comments on the continuation of deleveraging and tighter financial regulation
  • “The details slowly emerged during the day. ZTE’s downgrade hit sentiment as well, and the poster children of the stock rally, including Geely, began to fall, taking the market down with them”
  • Stock climbed 262% this year through Wednesday

Ronald Wan, chief executive at Partners Capital International Ltd.

  • Stocks had been rising because the market was expecting a message from the 19th Party Congress to support the market. To some extent people think there haven’t been any breakthroughs from the meeting, so the market is pulling back
  • Blue chips and developers are facing larger selling pressure because in addition to mainland economic data, there’s concern Fed hawks are gaining an edge
  • “If the U.S. hikes rates more quickly, blue chips will fall as Hibor rises”

Ken Chen, Shanghai-based analyst with KGI Securities

  • Hong Kong stocks are already at relatively high levels so any bad news can trigger selling
  • The US dollar has stabilized a bit recently, while China’s economy is showing signs of slowdown, putting pressure on the market
  • Some big funds may have waited for others to lower their guard in the afternoon to sell on the economic concern
  • The sudden drop in A shares in late afternoon trading also added to investor concerns as the market would’ve closed much lower if it weren’t for intervention by the national team

Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd.

  • The market got a bit panicked on Spain concerns, and investors are selling stocks with big EU-exposure, like HSBC, as well as shares that had rallied a lot this year, due to geopolitical concerns
  • Unsurprising that Hong Kong fell most among peers as it’s the first market Western investors would choose to cash out from, since it’s the most liquid in Asia and the best performer

Whatever the driver, there was no bounce as Hang Seng closed on the lows with 'The National Team' unable to rescue this - even amid the demanded peacefulness of The National Congress.