A stockbroker rests his head on his fist in a stock firm in Central on Monday. Experts say the perceived implication of a rate cut on equity markets may have waned as the mainland central bank's rate cut during the weekend, which is the fourth in eight months, failed to support the stock markets on the mainland and in Hong Kong during Monday trading. Roy Liu / China Daily

HSI slides to near three-month low while PBOC rate cut fails to scare the bears on manic Monday

The Hong Kong share market on Monday tumbled to its lowest level in nearly three months on fears of a looming Greek debt default and eurozone exit, and signs of the mainland A-share index entering a bear market as a weekend rate cut from the mainland central bank failed to boost equities.

The Hong Kong benchmark Hang Seng Index (HSI) shed nearly 700 points, or 2.6 percent, to close at 25,966.98 points, its lowest level since April 2. It tumbled more than 1,061 points at one stage but recouped some losses before close. Market turnover for the day was HK$186.1 billion.

The Hang Seng China Enterprises Index, the gauge for share price performance of mainland enterprises listed in Hong Kong, retreated 3 percent.

That came as the Shanghai Composite Index dropped 3.3 percent to 4,053.03 points at close, taking declines from its June 12 peak of 5,180 points to more than 20 percent. The gauge swung between a loss of 7.6 percent and a gain of 2.5 percent in Monday trading, the biggest intraday point move since 1992. A measure of technology stocks sank 7.4 percent to lead declines among industry groups.

"The recent move by the mainland central bank to cut interest rates and banks' reserve requirement ratio demonstrates how the central government is determined to bolster the flagging mainland economy. The worst scenario case of economic malaise in Greece has already happened," Dickie Wong Tak-kei, executive director of research at Kingston Securities Ltd, told China Daily.

"The Hong Kong share market should stabilize after the recent slump makes market valuations attractive again. The current market valuation of the H shares is essentially attractive," Wong said. "For those looking for (cross-border) exposure, the H-share market traded in Hong Kong is a proving a less volatile way to access the mainland equity market," BlackRock Chief Investment Strategist Russ Koesterich noted.

The People's Bank of China (PBOC) said on its website on Saturday that the one-year lending rate will be reduced by 25 basis points, or 0.25 percentage point, to 4.85 percent effective from Sunday. Reserve requirement ratios for some lenders, including city commercial and rural commercial banks, will be cut by 50 basis points.

"We have to bear in mind that the interest-rate cut is the fourth in eight months, so the perceived implication of a rate cut on equity markets may have waned," said Bernard Aw, a Singapore-based strategist at IG Asia Pte Ltd. "The market may be receiving mixed signals on what exactly the PBOC hopes to achieve with its rate cut."

Another factor feeding the negative market sentiment is the likely Greek sovereign debt default and imminent exit from the eurozone after the collapse of the rescue talks. Greece imposed capital controls on Monday, shuttered financial markets and closed banks until at least July 6 after cash machines were emptied at the weekend. Daily cash withdrawals will be limited to 60 euros ($66.73) and bank transfers or payments abroad will be banned.

Greeks will vote in a referendum on July 5 to decide whether their country will remain in the eurozone.

Bloomberg contributed to the story.

oswald@chinadailyhk.com

(HK Edition 06/30/2015 page9)