HSI slips 182 points as rate hike bets hammer property, gold

Index	Level	Change
HSI	25,402	-0.71%
HSCEI	8,465	-0.30%
HSTECH	4,557	-1.03%

The Hang Seng Index fell 0.71% to 25,402 at midday as rate hike expectations hammered property and gold stocks while state-owned banks rallied.

"As the volume of maturing existing fixed-term deposits declines, the impact of deposit repricing on net interest margins will gradually weaken," Liu Jun, president of ICBC, said at a post-earnings press conference.

Bank of China (3988.HK) surged 5.29% and China Construction Bank (0939.HK) gained 3.34%, both setting record highs after JPMorgan named them top picks following better-than-expected second-quarter results from major state-owned lenders. Postal Savings Bank of China (1658.HK) jumped 7.37% after JPMorgan upgraded it to Overweight. ICBC (1398.HK) added 1.41% and Agricultural Bank of China (1288.HK) rose 1.85%. Half-day turnover reached HK$138.1 billion.

The divergence reflects a rotation within the HSI as traders price in higher US rates. Property developers bore the brunt, with China Resources Land (1109.HK) slumping 7.72% — the worst blue-chip performer — after reporting a 17.2% year-on-year decline in interim net profit to RMB9.84 billion. Longfor Group (0960.HK) fell 6.11% and China Overseas Land (0688.HK) dropped 6.73%.

Rate Hike Bets Crush Property, Gold

Rising odds of US rate hikes sent gold prices plunging, dragging miners lower. Zijin Mining (2899.HK) fell 5.59%, Lingbao Gold (3330.HK) tumbled 9.12%, and Zijin Gold International (2259.HK) slid 7.32%. Gold jewelry stocks also weakened, with Laopu Gold (6181.HK) down 6.2% and Chow Tai Fook (1929.HK) off 6.91%.

Local property stocks retreated alongside mainland developers. Henderson Land (0012.HK) nosedived 6.07%, Sun Hung Kai Properties (0016.HK) fell 4.18%, and Hang Lung Properties (0101.HK) slipped 3.38%. Metal and mining stocks were broadly weak, with CMOC (3993.HK) plummeting 6.67% and China Hongqiao (1378.HK) losing 3.92%.

Bank Rally Built on Earnings Beats

The bank rally was underpinned by better-than-expected first-half results. China's five largest lenders reported profit growth between 3% and 5%, with Bank of China leading at 5.1%. Net interest margins across the commercial sector rose one basis point to 1.41% in the second quarter — the first quarterly increase since 2022.

JPMorgan said second-quarter results from major state-owned banks beat market expectations. The upgrade of PSBC to Overweight and the top-pick status for BOC and CCB reflect confidence in the sector's earnings resilience despite weak loan demand. New yuan loans in China posted a record contraction in July, leaving banks with little room to expand balance sheets or lift asset yields.

However, analysts cautioned the deposit repricing benefit would fade. "We do not expect margins to improve much in the near term, given the relatively low-rate environment and weak domestic consumer demand," said Elaine Xu, a director at Fitch Ratings.

The HSI's divergence — banks rallying while property and gold fall — reflects a market pricing in higher US rates. If rate hike expectations persist, rate-sensitive sectors face further downside while banks could continue to benefit from earnings momentum. The next event to watch is the US Federal Reserve's policy decision, with traders monitoring signals on the pace of tightening.

This article is for informational purposes only and does not constitute investment advice.