Hang Seng Bank Sees Sharp Dip Amid Morgan Stanley Downgrade And Rise Of Virtual Banks

Hang Seng Index
The reflections of pedestrians are seen on a screen displaying the Hang Seng stock index in Hong Kong (Photo: Reuters / Eloisa Lopez)

Following Morgan Stanley's warnings of a possible dip in Chinese banking stocks due to the rise of virtual banks and the country's continued economic slowdown, major banking equities in Hong Kong reacted accordingly.

The city's Hang Seng Index dropped in response to the dip in banking stocks on Wednesday, led by a significant dip in Hang Seng Bank's share prices.

Among the banks listed on the index, Hang Seng Bank was the second-worst performer for the day, dropping by more than 3.3 percent to HK$159.80. The drop was the bank's largest percentage drop in over two months following its 3.6 percent drop during the first week of August.

Other major banks on the index also experienced significant drops during the day. Standard Chartered saw it's stock prices fall by 0.9 percent to HK$61.05, while HSBC saw its prices drop by 0.56 percent to HK$58.10. The ratings for all three banks were downgraded to a "cautious" status following the dips.

The Hang Seng Index finished the trading day with a drop of 0.8 percent to 25,682.81 points.  

The poor performance in Hong Kong was contrasted by a relatively good trading day in mainland China. The Shanghai Composite Index closed with a 0.39 increase to 2,924.86. Meanwhile, the CSI 300 in both the Shanghai Stock Exchange and the Shenzhen Stock Exchange ended the day in the green.

Market analysts have stated that the fall in the stock prices of the banks was a clear indication that investors are now more worried about the state of Hong Kong's economy. The recent weakening in the city's interest rate environment also did not help in bolstering confidence in banking stocks.

While there were some growths in major indexes in China, the relatively low amount of the increases has been seen as a clear signal for investors to be much more cautious in the coming days. This is particularly true given the already scheduled trade negotiations between China and the United States this week. Chinese negotiators are scheduled to meet with their counterparts.

Overall market sentiment in China still remains to be weak and most investors are currently in a "wait and see" mindset given the variety of possible outcomes in the upcoming trade talks.

Major index and banking stocks for that matter react very quickly to any political development and most investors will likely want to wait to make any new bets to see if the time is right.

Apart from banking stocks, those that have been the most affected by the ongoing trade dispute and Morgan Stanley's downgrade included companies that have high outbound sales and major property stocks.

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