Hong Kong equity rally driven by Internet stocks

Hong Kong shares posted their best daily gain in three months as short sellers closed bets against Chinese internet groups and some investors dumped shares on hopes that a long sell-off for China shares was over. .

A sudden spurt for the Hang Seng index took it up 4 per cent on Friday. It was the best day for Hong Kong stock gauges since early March and followed weeks of selling that pushed the benchmark nearly 20 percent below its January peak and into a bear market.

Friday’s rally was led by Chinese Internet stocks, with the Hang Seng Tech index jumping 5.3 percent. Tencent and Alibaba closed 6 and 6.7 percent higher, respectively, in Hong Kong.

Those gains followed an overnight rally for Chinese tech stocks on Wall Street, where shares of Tencent rose 4.5 percent and the Nasdaq Golden Dragons index tracking large Chinese companies ended the session up 4 percent. .

A trader at a Wall Street bank noted gains for Tencent during US trading on Thursday, shortly after the release of a research note from Citigroup that triggered a rally. The note indicated that Tencent’s American depository receipts fell to roughly the same lows at which most investors bought during a resurging rally for Chinese stocks late last year.

“We would expect (investors who bought Tencent shares in December) to slow down the pace of decline in the stock and provide some support at these levels,” Mohammed Apabhai, global markets head of Asia trading strategy at Citi, wrote in the note.

Such an increase in support for Chinese Internet stocks could prompt short sellers targeting Tencent and similar companies to close out their positions, known as “short covering,” and on Friday In Hong Kong, traders said short covering was driving the lot. Rally.

“I have stacks of buy orders, but it’s all short covering,” said the trading desk head of a Chinese broker in Hong Kong. “There is no longer only buying going on and the big global ones not being involved. , , There is nothing original to this rally.

“There’s no question that some of this is short covering,” said Dickie Wong, head of research at Hong Kong-based Kingston Securities.

Wong said other drivers of the rally included Thursday’s reading on Chinese factory activity, which came in ahead of economists’ estimates, as well as rising expectations in global markets that the US Federal Reserve may not raise rates at its June meeting. Is.

However, he was pessimistic on the likelihood that Friday’s gains would continue for more than a few sessions — if that.

“Normally when we talk about the economy in mainland China, most of the recent data points have been worse than expected,” Wong said. “I don’t see much upside.”