Hong Kong shares rebound as China 'Minsky moment' fears recede

20 October 2017: Hong Kong shares rebounded sharply on Friday, as investors scrambled for bargains among stocks bruised from the previous session's sell-off, which was triggered by the Chinese central bank chief's reference to a "Minsky moment".

On Friday, the Hang Seng Index rose 1.2 percent, to 28,487.24 points, recovering much of Thursday's 1.9 percent decline, and ending the week roughly flat.

The Hong Kong China Enterprises Index jumped 1.8 percent, to 11,558.35 points, up 0.3 percent for the week.

The benchmark Hang Seng index fell the most in two months on Thursday, as investors were spooked by People's Bank of China governor Zhou Xiaochuan's comments that risks from excessive optimism could lead to a "Minsky Moment". European stocks also suffered.

A Minsky Moment, named after economist Hyman Minsky, is a sudden collapse of asset prices that follows a long period of growth, sparked by debt or currency pressures.

"The rebound shows the market was wrong yesterday," Robert Di, founding partner of asset manger RPower Capital said.

He added there had been some misreading of Zhou's remarks, which he said were used as an excuse by some investors to take profit following Hang Seng's nearly 30 percent surge this year.

"What Zhou said was an assumption, a scenario," Di said, noting the market had interpreted it more as a present reality.

Di's view was echoed by Zhang Yidong, strategist at Chinese brokerage Industrial Securities.

Zhang wrote in a report that Zhou's reference to a "Minsky moment" was part of his analysis of systemic financial risk and not about the current state of the Chinese economy.

He added that Hong Kong stocks are still cheap relative to equities in many other global markets.

According to the brokerage, Thursday's correction attracted nearly 2 billion yuan ($302.35 million) worth of net inflows from the mainland, as Chinese investors hunted bargains among blue-chips including Ping An, Bank of China and Tencent.

Shane Oliver, head of investment strategy at AMP Capital in Sydney, said Zhou's choice of terminology to project the spectre of asset price meltdown was possibly targeted at central bank leadership transition.

"I guess he wants to effect change and make life a little bit easier for his successor," Oliver said.

"A bit like Bernanke wanted to end the process of quantitative easing before Janet Yellen took over."

Governor Zhou said on Thursday that he is likely to retire soon, confirming an earlier Reuters report.

Nearly all sectors rose on Friday, as investors also took comfort in overnight firmness on Wall Street.

The property and financial sectors, which were among Thursday's biggest losers, both rebounded sharply.

Resource shares erased all of the previous session's hefty losses, and were up 3.4 percent on Friday.