[HONG KONG] For Hong Kong stock investors, the final hour of trading used to offer a much-needed sanctuary from an equity rout across the mainland border. Not any more.
In the month through last week, the city's Hang Seng Index moved an average 121 points after Shanghai's market shut at 3pm local time. About half the time, the price swings were more exaggerated than the day's hourly average, data compiled by Bloomberg show. In the prior month, when declines on the mainland were even steeper, that happened just once.
The change shows just how jittery Hong Kong investors have become, with both individuals and hedge funds unwilling to trade earlier in the day in case market sentiment changes, said Value Investment Principals Ltd's Sandy Mehta. As Asia's biggest market with opening hours that straddle Europe's, the city is also being buffeted by heightened worldwide volatility as concern about global growth drives shares lower from Frankfurt to New York.
"It's a classic sign of investor uncertainty and hesitation - wait for the last possible minute to place one's bets," said Mr Mehta, who heads the Hong Kong-based investor advisory firm. "Everyone is looking over their shoulder." Thin turnover is exaggerating price moves toward the close as investors rush to complete orders, according to Steven Leung, an executive director at UOB Kay Hian Ltd.
Average volume in Hong Kong fell to 205 billion shares a day in September, down from 232 billion in July. The Hang Seng Index's 30-day volatility this month rose to the highest since December 2011.
From June through late August, the correlation between Hong Kong and mainland Chinese stocks increased, and most of the Hang Seng Index's biggest moves came in tandem with Shanghai.
The Shanghai Composite Index fell 40 per cent from its June peak through Wednesday, with volume plunging as investors shied away from the highest volatility among major global markets.
State intervention has helped stem losses: although the share gauge is poised for a 2.7 per cent drop in September, that would be its best month since May. The Shanghai measure added 0.2 per cent as of 11.06am local time on Thursday, while the Hang Seng Index slipped 0.7 per cent.
"Turnover has gone down so there's no direction coming from China anymore," said Alex Wong, a Hong Kong-based asset- management director at Ample Capital Ltd. "People are not willing to take fresh bets."
Instead, they're waiting for European equities to open, Wong said. Hong Kong's trading hours currently overlap London and Paris by one hour, after the close in Shanghai and Shenzhen.
"When the European market opens it's affecting our sentiment here," said Wong. "During the other hours, there's no volatility. People are not willing to trade much so they wait until the last hour to see if there is any new direction." Tuesday's trading was a case in point. The Hang Seng measure lost more than 1 per cent in the final 60 minutes to virtually erase its gain for the day as the Stoxx Europe 600 Index slumped after the open.
In the month through Sept 18, the Hang Seng Index moved an average 121 points after 3pm, about the same as in the other hours of the day, data compiled by Bloomberg show. In the month before that, the gauge only moved an average 30 points in the countdown to the close, less than half the average hourly swing.
"Given market volatility and a cross current of data and indicators, investors are quite uncertain and a bit nervous about which way the market are heading," said Value Investment Principals' Mehta. "A lot of retail investors and hedge funds are shortening their investment time horizon and waiting for the last hour of trading to place any overnight bets."