Hong Kong stocks slip as investors turn defensive after 4-month rally amid fading US rate-cut bets

Hong Kong stocks declined on Friday, on track to register the biggest weekly loss since January, as investors turned defensive after a four-month rally. Key Asian markets also fell as strong US economic readings dampened rate cut optimism.

The Hang Seng Index fell 1.3 per cent to 18,629.10 at the local noon trading break, the fourth straight day of declines taking the benchmark to a two-week low. The Tech Index tumbled 1.9 per cent, while Shanghai Composite Index lost 0.2 per cent.

All but 10 of the 82 index members declined. Tencent lost 1.3 per cent to HK$377, e-commerce firm JD.com retreated 2.8 per cent to HK$120.20 and food delivery platform Meituan lost 2.2 per cent to HK$116.90. New World Development lost 3.7 per cent to HK$9.10, Hang Lung Properties weakened 4.3 per cent to HK$7.64 and Hang Seng Bank slipped 2 per cent to HK$110, leading declines among local lenders and developers.

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Sentiment took another hit on Friday after US business activity accelerated in May, with the US Composite PMI Output Index tracking the manufacturing and services sectors jumped 54.4. Bets on Fed rate cuts waned, with virtually no chance of a cut at the June meeting, according to CME Fedwatch Tool.

Today's decline brought the losses this week to 3.6 per cent, the worst since January, in a slump that has wiped out over US$100 million in value from the city's stocks, according to Bloomberg data.

Lack of positive earnings surprises and hawkish comments from US Federal Reserve officials have soured risk appetite, prompting profit-taking on the heels of a four-month rally that propelled the Hang Seng Index to a 10-month high.

"Hong Kong equities recorded resistance from profit-taking activities," Patrick Pan, strategist at Daiwa Capital Markets, wrote in a note. "We slightly turn defensive in the short term by trimming our positions" in some stocks sensitive to fund flows, he added.

E-commerce firm Alibaba surrendered gains posted after the company said on Thursday it would raise US$4.5 billion by issuing convertible bonds and use the proceeds to fund share repurchases. Its shares declined 0.3 per cent to HK$78.40 at the noon break.

Elsewhere, biopharma firm Sunho Biologics surged 11.1 per cent from its IPO price to HK$15 on its first day of trading.

Other key Asian markets also fell. Japan's Nikkei 225 and Australia's S&P/ASX 200 both dropped 1 per cent. while South Korea's Kospi declined 1.1 per cent.

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