Hong Kong’s benchmark index hit a 19-month high on Friday, and is on track for its best week in six months, as risk sentiment improves after the U.S. Federal Reserve kept its tightening outlook. Hong Kong’s Hang Seng index rose to an intraday high of 24,385.81 points, the highest since August 2015. By the lunch break, the index was up 0.3 percent to 24,354.89. The Hong Kong China Enterprises Index gained 0.2 percent, to 10,546.63 points. In mainland China, shares pulled back as investors await fresh evidence of a sustainable recovery in the world’s second largest economy, while continuing to buy relatively cheap Hong Kong plays via the Connect schemes. As a result, the valuation premium Chinese shares enjoy over their Hong Kong peers shrank on Friday to the lowest level in 15 months. China’s blue-chip CSI300 index fell 0.2 percent to 3,474.27 points, while the Shanghai Composite Index lost 0.2 percent to 3,261.16.
The markets were buoyant on Thursday after the Fed raised short-term interest rates as expected, but stuck to its projection of three rate hikes this year, defying market expectations for more aggressive tightening. “The marginal impact of U.S. rate hikes on China markets is getting smaller and smaller,” said Yang Hai, strategist at Kaiyuan Securities. He added that foreign investors could start buying more yuan assets due to the dollar weakness and China’s improving economic situation. The U.S. rate hike triggered little panic in China’s currency and bond markets. Traders also shrugged off an increase in short-term interest rates that China’s central bank made on Thursday.
The People’s Bank of China said the rate increase in the interbank market did not point to any change in monetary policies. China’s yuan has steadied this year after falling 6.5 percent last year, the biggest annual drop since 1994, following a series of capital control measures. Net foreign exchange sales by China’s commercial banks fell to their lowest level in six months in February, reflecting less capital outflows. Sector performance was mixed in both China and Hong Kong. China indexes were dragged lower by weakness in banking and transport shares. In Hong Kong, telecom stocks were among the lead gainers but consumer shares sagged.