Hong Kong stocks drop to 6-month low as Lenovo, Xpeng earnings take a hit from China’s weak recovery, US debt ceiling talks sap sentiment

The PC maker’s revenue slipped 17 per cent in the first quarter, while Tesla challenger Xpeng saw its revenue nearly halve
US lawmakers are still locked in their negotiations over raising the debt ceiling with only days to go before an unprecedented default could occur

Hong Kong stock market

Jiaxing Li

Published: 10:57am, 25 May 2023

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Hong Kong stocks dropped to a six-month low as Lenovo and Xpeng reported disappointing earnings amid China’s weak economic recovery. A stalemate in debt ceiling talks in the US continued to sap sentiment.

The Hang Seng Index slid 1.9 per cent to 18,746.92 at Thursday’s close, breaching the 19,000-mark for the first time since December. The Tech Index dropped 2.3 per cent while the Shanghai Composite Index declined 0.1 per cent.

Alibaba and Tencent both dropped 3 per cent to HK$78.65 and HK$323.40, respectively. Food delivery giant Meituan shed 3.4 per cent to HK$126 while CSPC Pharmaceutical weakened 3 per cent to HK$7.23 before reporting their results later today. Property developer Longfor Group slipped 2.6 per cent to HK$15.72, while Country Garden, one of its peers, tumbled 1.3 per cent to HK$1.49.

Lenovo, the world’s largest PC maker, reported that its revenue dropped 17 per cent during the March quarter and announced a 5 per cent cut of its workforce to cut costs. Smartphone maker Xiaomi’s revenue fell 19 per cent in the first quarter, hit by weak consumption in China and sluggish global demand.

Similarly, Tesla challenger Xpeng saw its revenue nearly halve as an aggressive price war between electric-car makers narrowed margins.

“China’s recovery is losing steam,” said Arthur Budaghyan, chief emerging markets strategist at BCA Research, in a webinar on Wednesday. Consumer spending growth has lagged expectations, while the property sector is not about to turn a corner any time soon, he said.

The Hang Seng Index declined for a third week with a 3.6 per cent loss, the longest losing streak since February when the so-called China reopening trade started to crack. The benchmark is down 17.4 per cent since its January 27 peak, erasing US$530 billion from the city’s broader market, according to Bloomberg data.

Weighing on sentiment, US lawmakers are still in a stand-off in their negotiations over raising the debt ceiling, with only days to go before the government could face an unprecedented default. Fitch Ratings said on Thursday it has placed the US’s AAA credit rating on watch for a possible downgrade, as the risk of missed payments on the rise.

Elsewhere, three stocks debuted on Thursday. Horizon Construction Development crashed 29 per cent and Edianyun lost 3 per cent during their first day of trading in Hong Kong, while Zhejiang Tongxing Technology soared 97 per cent in Shenzhen.

Major Asian markets were mixed. The Nikkei 225 in Japan added 0.4 per cent. The S&P/ASX 200 Index in Australia lost 1 per cent while the Kospi in South Korea declined 0.5 per cent.