Tencent, China Mobile just snatched away Hong Kong’s bull market

Disappointing results from some of Hong Kong’s biggest stocks shattered hopes for a bull market this week.

The Hang Seng Index was down 0.2% as of 1:24 pm Friday, with Tencent, PetroChina and China Mobile  weighing after their earnings left investors unimpressed. The benchmark was on the brink of entering a technical bull market Tuesday, ending about 0.1% below the milestone. A close at or above 29 502.64 would’ve made it official, capping a rally nearing $1 trillion in value since October.

The most intense earnings day since 2017 caused quite the headache. Investors had only just turned bullish on Hong Kong equities, encouraged by surging risk appetite in China, a dovish tilt in central-bank policy globally and heavyweight Tencent’s return from the doldrums. Despite the setback, the Hang Seng Index has still surged 12% this year.

The pace of gains has been nowhere near as fast as on the mainland, where returns remain better than in any other market in the world.

Peg defense

It’s all about Hong Kong this week. The city’s currency is keeping FX traders busy — especially early in the morning, when the de facto central bank has been intervening to protect the local dollar’s trading band. The currency got some reprieve from a dovish Federal Reserve, and is now trading near its strongest level in six weeks. The Fed’s signal that it will keep rates on hold this year surprised analysts and alleviated pressure on Hong Kong authorities.

Pegged to the US dollar since 1983, Hong Kong’s currency has hit the weak end of its trading band repeatedly this month, spurring intervention that’s cost $1.5 billion. Local one-month borrowing costs climbed for a 12th straight day Friday to the highest since January. That’s helped narrow the gap between Hong Kong and US borrowing costs, making shorting the local dollars less lucrative.

Catching up

Here’s what else caught our eye this week:

China’s equity rally will decelerate in the coming months. Hong Kong’s most famous stock picker made an appearance. How to calm an investor stampede into convertible bonds. Bocom surprises by cutting its fundraising target by half. Just as China’s banks raise a record amount of money. China considers whether to take REITs for a trial spin. Private equity snaps up Chinese commercial property. Another sign that credit stress in China is deepening. A star trader’s Chinese stock fund lures $10 billion in 10 hours.