Big Money Doubts Recovery in Hong Kong Stocks, Trading Shows

(Bloomberg) -- Ever since a global equity selloff spread to Hong Kong, turnover is more likely to drop on days when shares in the city are rising. That’s a change, and may be a sign investors are doubtful about a sustained recovery, according to GEO Securities Ltd.

Of the 15 days the Hang Seng Index climbed since hitting a bottom on Feb. 12, turnover fell from the previous day 63 percent of the time, according to data compiled by Bloomberg. The average value of daily trades on the bourse’s main board was 12 percent lower on those days -- a reversal of before the rout, when rising markets were accompanied by higher turnover.

The Hang Seng Index slid Friday as a trade war between the U.S. and China escalated and index heavyweight Tencent Holdings Ltd. tumbled. The equity index was down 2.8 percent as of the midday break, with volume 66 percent higher than its 30-day intraday average.

“Some big institutional investors believe the market may have reached a temporary peak” and the lower turnover is a sign of weak conviction, said Francis Lun, chief executive officer at Geo Securities. “But smaller investors still believe that the market has some way to go, so they’re buying on the dips.”

The Hang Seng Index has been stuck in a range since the global selloff knocked it off a record high on Jan. 26. Financial shares have weighed, offsetting gains by tech companies like Sunny Optical Technology Group Co., which has climbed 43 percent. In the year through the index’s January peak, turnover was on average 4.5 percent higher on days markets rose than when they fell.

The 60-day correlation between the Hang Seng Index and daily turnover on the main board was last month the most negative in more than two years, meaning they tended to move in opposite directions, according to data compiled by Bloomberg.

The phenomenon may also be driven by the growing size of passive funds, said Hao Hong, chief strategist at Bocom International Holdings Co. When there’s a sharp move in large-cap stocks, passive funds tracking relevant indexes are forced to buy or sell, and there may have been more concentration on bigger companies on the way down recently, he said.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies, Chris Nagi

©2018 Bloomberg L.P.