Buy-the-Dip Helps Lift Stocks in Hong Kong as Trade Threat Grows

(Bloomberg) -- Value hunters tempted by recent declines looked to equities in Hong Kong on Friday, after the city’s ties to the world’s two largest economies bruised its markets this week.

The Hang Seng Index closed up 1.1 percent, recovering about half of its losses from Wednesday, its last session. The gauge, which trades near its lowest price-to-earnings multiple since 2016, finished the holiday-shortened week with a 0.8 percent decline. A measure of mostly Chinese companies trading in the city rose 0.9 percent on Friday, rebounding from its lowest level of the year. That trimmed its weekly loss to 0.3 percent.

The latest escalation in the tariff row isn’t yet being felt on stock markets on China’s mainland, as traders there are off for a holiday until Monday. The link that allows mainland investors to buy Hong Kong stocks has been closed since March 30, and trading will resume next week. U.S. stock-index futures dropped 0.8 percent on Friday.

“Hong Kong stocks are seeing a technical rebound after Wednesday’s slump,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “People are still very cautious. Investors are waiting for the Chinese government’s response to Trump’s urge to levy an additional $100 billion tax, as well as the A-share market’s performance on Monday.”

Hong Kong’s equity market is particularly vulnerable to trade tensions -- not only does it host a significant number of Chinese companies, but the city’s currency is also pegged to the U.S. dollar. The Hong Kong dollar was little changed at 7.8489 versus the greenback Friday.

Tencent Holdings Ltd. was the biggest contributor to gains on the Hang Seng Index, rising 2.1 percent to HK$405.80. The tech company’s shares Wednesday dipped below the HK$405 price at which its biggest shareholder sold almost $10 billion worth of stock two weeks ago.

Finance giants HSBC Holdings Plc and China Construction Bank Corp. rebounded 0.9 percent and 1.5 percent, respectively. Travel-related stocks also fared well, with China Southern Airlines Co. gaining 3.2 percent and Air China Ltd. adding 2.4 percent.

©2018 Bloomberg L.P.

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