Bears have returned to target Hong Kong’s equities and currency after being blindsided in a painful short squeeze last month.
The Hang Seng Index slid as much as 1.7 percent and the Hong Kong dollar fell toward the weak end of its trading band with the greenback as traders returned to work Tuesday after a holiday. Some blamed China’s weak manufacturing data over the weekend for the losses, as well as reports of a U.S. warship sailing close to islands claimed by China. Mainland markets and exchange links with Hong Kong will be shut throughout the week
Everything from the Sino-U.S. trade dispute and higher interest rates has made negative sentiment the flavor of the year in Hong Kong, where stocks have just clocked a fifth straight monthly decline. But news from Beijing or Washington can trigger intraday pops, which magnify losses for shorts as traders rush to cover bearish bets. Some 11 stocks on the Hang Seng Composite Index rose more than 20 percent last month, while the Hong Kong dollar’s biggest surge in 15 years shocked what is typically a sleepy market.
“Hong Kong is a gateway market to China, and sentiment tends to shift on a dime,” said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda Corp. “Traders and investors will be sensitive to relatively minor adjustments in the short-term economic data — today’s drop is a catch up to the weekend’s PMIs. The short squeeze in September suggests bigger players are looking at pockets of opportunities.”
