Deadly disease 'used as an excuse' for sell-off, and MSCI delay is 'no big deal'

The deadly Middle East Respiratory Syndrome (MERS) plaguing South Korea struck Hong Kong on Wednesday - not in the form of an outbreak, but was blamed for a 301-point slump on the city's bourse.

Analysts were quick to point the finger at investors using the disease as "an excuse" to dump their shares on a day when not even a decision by international stock-index compiler MSCI Inc not to include mainland A shares in its global benchmarks for the time being could be seen to batter local investor sentiment.

The benchmark Hang Seng Index (HSI) sank 1.1 percent to close at 26,687.64 - a two-month low - while, on the mainland, shares prices also headed south, with the Shanghai Composite Index losing 0.2 percent to 5,106 on turnover of 1 trillion yuan ($161.2 billion).

Hong Kong shares retreated by as much as 1.5 percent in afternoon trading on reports that three people were admitted to hospital on suspicion of having contracted MERS on their return to Hong Kong following visits to South Korea.

Health officials said later they were testing a woman for fever.

"The Hong Kong market has been unstable and weak recently," said Kingston Lin King-ham, general manager of securities and asset management business at Hong Kong-based AMTD Asset Management Ltd. "Reports about MERS were a catalyst for the market plunge on Wednesday."

He expected the HSI to slip further in the next few days, hitting 26,000 - some 2.57 percent lower than Wednesday's close.

Hong Hao, managing director and chief strategist at BOCOM International Holdings Co Ltd, agreed that investors had panicked over MERS, contributing greatly to the market decline on Wednesday.

The aviation and retail sectors bore the brunt of the retreat, with Cathay Pacific Airways Ltd giving up 1.59 percent to HK$18.62, and Chow Tai Fook Jewellery Group Ltd shedding 3.1 percent to HK$8.14.

In Hong's views, the slump in Hong Kong stocks is not over fundamental risks, but negative investment sentiment. "The city's shares will continue to remain unstable following recent losses."

Market experts do not agree that Wednesday's losses were sparked by MSCI's decision to delay including mainland stocks in its global benchmarks until certain issues over market accessibility have been resolved.

On the mainland, the Shanghai Composite Index had surged in the past few trading days on expectation that including A shares in MSCI indexes would trigger a heavier inflow of capital into mainland equity markets.

Hong Kong had opened 63 points higher on Wednesday when MSCI Inc made its announcement.

"Some investors even expect foreign capital flow into Hong Kong to accelerate after MSCI Inc failed to add mainland stocks to its benchmark indexes," said Hong. He said the capital-inflow talk had probably caused Hong Kong stocks to open higher.

MSCI Inc said it will continue to work with mainland regulators to establish policies to resolve the "remaining accessibility issues", including allowing investors access to quotas commensurate with the size of their assets under management, improvements in liquidity and further clarification of share-ownership rules.

Lin said he does not expect to see inclusion happening sooner, but it's possible it till take place by the end of this year.

"Hong Kong shares are still very much cheaper compared with Chinese mainland shares, especially when more foreign capital flows into the mainland stock market if the (MSCI) inclusion comes later," he said.

celia@chinadailyhk.com

Although MSCI (Morgan Stanley Capital International) Inc said on Wednesday it has decided to delay including Chinese mainland stocks among its global benchmarks, experts believe that Wednesday's stocks slump in Hong Kong was due to negative investment sentiment. Victor J. Blue / Bloomberg

(HK Edition 06/11/2015 page8)