Watch out for dead-cat bounce in Hong Kong stock market

A recovery in Hong Kong's stock market yesterday may be a classic dead-cat bounce, with investor sentiment clearly risk averse despite a fresh flurry of edicts from mainland regulators designed to soothe investor fears of an unstoppable slide in the country's stock markets.

While the market-calming measures had the desired effect, they masked the narrow nature of the day's rebound.

Data for Hong Kong's benchmark Hang Seng Index showed buying and selling volume to be almost evenly matched. Buyers outpaced sellers by a mere 9 per cent, though that was enough on the day to hoist the index 3.73 per cent, or 876.23 points higher, largely as a consequence of purchases in select blue chips.

"Unfortunately, with bounces like today, this emotional and high-volume trading capitulation doesn't come to fruition. Then add to the mix the fact that half the stocks in China are halted and this bottom becomes harder to achieve," said Brett McGonegal, chief executive of Reorient Group, a Hong Kong-listed investment firm.

"We were almost at the bottom and bounces like today prolong the timeframe to get that bottom in place."

Few investors cheered news of another of 194 companies halting their shares from trading on the mainland. A total of 1,439 stocks, about half the number of listed companies in Shanghai and Shenzhen, are now suspended from trade.

"The sell-off in blue-chip companies was a by-product of so many stocks being halted in the mainland," McGonegal said, explaining the core reason for the plunge in the Hang Seng Index on Wednesday, as fund managers were forced to dump other holdings when they could not sell on the mainland.