Hong Kong shares ended their worst May in 14 years with a whimper on Thursday, as an escalating euro zone crisis and fears about China's economy threatens to wipe out the Hang Seng Index's gains for the year.
The Hang Seng Index slumped 11.7 percent in May, underperforming mainland Chinese markets for a second-straight month. The large cap-focused CSI300 Index rose 0.2 percent this month, while the Shanghai Composite Index slipped 1 percent.
“Markets are not yet in panic mode but sentiment is weak. I am seeing reduced interest in the equity markets from clients,” said Alan Lam, Julius Baer's Greater China equity analyst.
“I expect the A-share outperformance to continue. Any monetary easing move by Beijing would be felt more keenly in the mainland Chinese markets,” Lam added.
On Thursday, the Hang Seng Index briefly dipped into negative territory for the year before paring losses on the day to end down 0.3 percent. It is now up 1.1 percent in 2012.
Its May losses were its worst for that month since 1998 and worst monthly performance since last September, when it dived 14 percent on both occasions.
The Hang Seng's losses on Thursday were limited by some Chinese financial stocks that reversed losses, spurred by a higher opening in European markets. The China Enterprises Index of the top Chinese listings in Hong Kong shed 0.1 percent.
China Construction Bank (CCB) reversed direction to end up 2.5 percent, mainly on demand by index funds as they rebalanced their portfolios ahead of a series of changes to MSCI China components effective on Friday.
Trading in Chinese banks accounted for about a quarter of the day's turnover on the Hong Kong exchange, helped by a $400 million block deal for the shares of Industrial and Commercial Bank of China (ICBC) at about HK$4.50 each
ICBC rose 1.5 percent to HK$4.72 in Hong Kong on Thursday.
Exporters were among the hardest hit. Li & Fung, the exporter whose global distribution and trading centres make it a barometer of consumer sentiment, slumped 5.9 percent and was the biggest drag on the Hang Seng Index.
CHINA RAILWAY, MACAU GAMING WEAK
Chinese railway stocks were mostly weaker after outperforming last week on a series of policy pledges to support the sector until a Xinhua news report late on Tuesday moderated expectations of a large China stimulus.
China Railway Construction shed 1.8 percent in Hong Kong and 2 percent in Shanghai. It is now down 4 percent in Hong Kong this week after jumping 13 percent last week.
The Macau gaming sector was hurt by news that a vice-president at Agricultural Bank of China
is under investigation by the Chinese Communist Party for his alleged involvement in gambling-related financial crimes.
Traders said the sector was also hurt by chatter of a slower junket demand from the mainland as a result. Galaxy Entertainment slumped 4.3 percent, while Wynn Macau shed 3.8 percent.
In a measure of dire market sentiment, London luxury jeweller Graff Diamonds has pulled its planned $1 billion Hong Kong initial public offering, the third major IPO to be called off in Hong Kong this week, as tumbling stock markets threaten to claim yet more casualties in the region.
Julius Baer's Lam said the window for fund raising could still reopen later in the year, if markets are buoyed by an expected easing of China's monetary policy.
Several other IPOs, some of them in the same luxury sector as Graff Diamonds, were cancelled last year but managed to relaunch towards the end of last year or earlier this year.
But even so, they have underperformed the broader Hong Kong market. Chow Tai Fook, which made its listing debut in the territory in mid-December, is now down more than 35 percent this year after diving 5.5 percent on Thursday. - Reuters