Asian stocks’ early gains eroded Monday, led by declines in Hong Kong and mainland China over worries about the Hong Kong dollar.
The currency last week weakened to the bottom of its trading band against the U.S. dollar, leading Hong Kong’s monetary authority to try to bolster it by selling $1.23 billion in U.S. dollars to buy Hong Kong dollars.
“This is mainly a liquidity-driven decline” as some funds leave Hong Kong, said William Lo, chief investment officer at Infinitus Partners Asset Management. The firm has been underweighting Hong Kong stocks, expecting rising interest rates to increase local companies’ borrowing costs.
Local interest rates are rising: Hong Kong’s one-month interbank lending rate, or Hibor, jumped back to 1% on Monday from 0.85% on Friday. On a sustained basis, Lo said property developers would be hardest hit while lenders would be the major beneficiary.
As for mainland shares, DBS strategist Ivan Li said recent soft data from China — including Friday’s news of a surprise trade deficit for March — have cast a shadow over the outlook for the world’s second largest economy. That has some investors on the sideline ahead of Tuesday’s release of first-quarter China economic growth and March business activity, he added.
Also on tap this week are more earnings out of the U.S. and speeches by Federal Reserve officials.
Asian stocks generally started higher Monday, but by the close the only major indexes in positive territory were in Australia, South Korea and Japan. Australia’s S&P/ASX 200 XJO, +0.21% gained 0.2%, while South Korea’s Kospi index SEU, +0.10% ended up 0.1% and Japan’s Nikkei 225 index NIK, +0.26% rose 0.3%.