Hong Kong stocks retreat by most in 5 weeks on corporate earnings worries

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Hong Kong stocks declined by the most in five weeks, pulling back from 10-month highs as Li Auto’s earnings fell short of market expectations and sparked concerns about corporate financial performances in the world’s second largest economy.

The Hang Seng Index lost 2.1 per cent to 19,220.62 at the close of trade on Tuesday, the biggest retreat since April 16. The Tech Index lost 3.7 per cent while the Shanghai Composite Index weakened 0.4 per cent.

EV maker Li Auto’s plunged 19.3 per cent to HK$80.65, the biggest drop on record, after it reported a 37 per cent decline in first quarter earnings to 591.1 million yuan (US$81.7 million) amid a bruising price war. Its peers also tumbled with BYD declining 4.4 per cent to HK$217, Geely losing 3.8 per cent to HK$10.24, and Xpeng tumbling 10.5 per cent to HK$30.65 ahead of its earnings announcement later today.

Li Auto’s “pricing pressure appears much worse than anticipated,” Deutsche Bank analysts Edison Yu and Bin Wang said in a note on Tuesday. The company is likely to miss its delivery guidance this year amid intense competition and other unfavourable factors, they added.

A Li L6 by Li Auto is displayed at its booth during the Beijing International Automotive Exhibition, or Auto China 2024, in Beijing, China, April 25, 2024. Photo: Reuters

Among other prominent losers, Tencent lost 2.9 per cent to HK$383.60 and JD.com lost 3.5 per cent to HK$132. Techtronic Industries tumbled 8.4 per cent to HK$28.45 after changes in its management.

Before today’s retreat, the city’s benchmark index had advanced for four straight weeks to a 10-month high, amid signs of economic stabilisation and following policy support measures across the housing and capital markets.

The rally pushed its 14-day relative strength indicator above the 70-mark on the charts, a signal interpreted by technical analysts that stocks are overbought.

The macro environment has a lot of uncertainties regarding the timing and magnitude of the rate cuts and geopolitical conflicts, analysts at China Great Wall Securities said in a note. “Profitability will become the anchor for investors” after the recent nascent rally, they added.

Analysts have lowered their earnings projections for companies within the MSCI China index by 3.9 per cent so far this year, according to Goldman Sachs.

Other key Asian markets mostly traded lower. Australia’s S&P/ASX 200 dropped by 0.2 per cent, Japan’s Nikkei 225 declined 0.3 per cent while South Korea’s Kospi dropped 0.7 per cent.

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