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Hong Kong Stocks Dip, CATL Falls 10%, Hang Seng Struggles

Hong Kong stocks drop as CATL falls nearly 10%, Hang Seng Index diverges negatively from US equities.

By Barry Stearns

6/10, 23:00 EDT
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Key Takeaway

  • CATL's nearly 10% stock drop in two sessions has negatively impacted Hong Kong equities, causing a ripple effect across the region.
  • The Hang Seng Index is experiencing negative divergence with US equities, raising concerns of further declines.
  • Chinese equities face multiple challenges, including property sector weakness and potential EU tariffs on EVs, with the Shanghai Composite nearing critical support at 3,000.

CATL Impact on Hong Kong Stocks

Hong Kong equities are experiencing a challenging start to the week as traders adjust their portfolios to account for losses from Contemporary Amperex Technology Co. Limited (CATL). Although CATL is not a component of the Hang Seng Index, its significant presence in the Greater China market means its performance has a broad impact. CATL's stock has dropped nearly 10% in less than two sessions, causing considerable pain for portfolio managers. This decline has led to a ripple effect, influencing investor sentiment and trading behavior across the region.

Divergence with US Equities

The Hang Seng Index (HSI) has once again entered a phase of negative divergence with US equities. This pattern has been observed multiple times over the past two years, often resulting in unfavorable outcomes for Hong Kong stocks. The current divergence is exacerbated by the broader market sentiment, which remains cautious. Investors are wary of the potential for further declines, especially given the historical context where Hong Kong equities have struggled during such periods of divergence.

Chinese Equities' Struggles

Chinese equities are also facing a tough environment as they return from a long weekend. The Shanghai Composite Index is nearing a critical support level of 3,000, which it has tested three times between March and April. A definitive breach of this level could signal the unwinding of gains made in February. The market is grappling with several issues, including ongoing weakness in the property sector, disappointment over Apple's recent AI event, and concerns about potential EU tariffs on Chinese electric vehicles (EVs). Additionally, the holiday period did not deliver the expected boost in tourism, further dampening sentiment.

Garfield Reynolds from Bloomberg noted, "The death by a thousand cuts that Chinese equities are facing shows investors are going to need some fresh, large doses of medicine from the authorities to sustain this year’s fading rally."