Daily Investment Strategy
HSI fell 517 points on Monday
The Hang Seng Index closed at 19,000, down 517 points or 2.7%. The HSTECH closed at 3,870, down 109 points or 2.8%. The HSCEI fell 146 points, or 2.2%, to 6,469. Market turnover was HK$129.44bn. Financial stocks performed poorly today. HSBC (0005), Standard Chartered (2888) and AIA (1299) fell 6.2%, 7.3% and 4.2% respectively. Prudential (2378) dropped the most, reaching 8.3%. Gold sector outperformed the market due to risk off. Zijin Mining (2899) rose 4.0%.
European bank high-risk bonds faced heavy selling
UBS and Credit Suisse's merger plan included writing off the face value of a batch of high-risk additional Tier 1 bonds (Additional Tier 1) worth SF$16bn to zero. Market worried such action may be repeated in future when European banks encounter a situation similar to Credit Suisse. Thus, the AT1 bonds of many banks have been sold off, such as the AT1 bonds of UBS and Deutsche Bank, which fell by more than 10 cents per dollar on Monday. In order to restore investor confidence, the European authorities publicly stated that bond investors will only face losses after common equity value is completely reduced to zero.
The three major US stock indexes all rose. The Dow Jones index rose 382 points, or 1.2%, to 32,244 points; the Nasdaq index rose 45 points, or 0.39%, to 11,675 points; the S&P 500 index rose 34 points, an increase of 0.89%, at 3,951 points.
Heavy Sell-off also hits Asian banks
The complete write-down of Credit Suisse AT1 bonds has also affected the Asian market. On top of the sharp decline in the stock prices of European financial stocks listed in Hong Kong yesterday, some Asian banks, e.g. East Asia (0023) perpetual bonds with 5.825% coupon fell to about 80 cents, down 9.4 cents US on a single day. Some bank executives said that the Swiss approach destroyed the bank's financing path through the issuance of AT1 bonds.
Hong Kong Stock Connect had a net inflow of HK$5.69bn on Monday, of which Hang Seng China Enterprises (2828) had the largest net inflow of HK$1.02bn; followed by Tencent Holdings (0700). China Mobile (0941) recorded the largest net outflow of HK$890mn, followed by East Buy (1797).
Wen Kit Kenny is a SFC licensed person accredited to KGI Group to carry on regulated activities (for details, please refer to:https://apps.sfc.hk/publicregWeb/indi/AJF244/details). He and/or his associate do not have any financial interest in the recommended issuer or new listing applicant.
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