Post-holiday blues hit Hong Kong’s Chinese equities as economic concerns rise

Chinese stocks in Hong Kong faced a significant downturn as trading restarted after the holiday. This decline was influenced by an overarching risk-averse sentiment throughout the region and escalating concerns about China’s economic prospects. The Hang Seng China Enterprises Index, a barometer of China’s business health, dropped by 3.2%, its steepest fall in almost three months. Ironically, this drop happened in spite of positive economic indicators from China, such as a doubled tourism revenue over the holiday weekend.

Post-holiday blues hit Hong Kong's Chinese equities as economic concerns rise

Absence of support from mainland traders, due to the ongoing Golden Week holiday, further exacerbated the situation. Concurrently, the speculation of rising US interest rates strengthened the dollar, casting a shadow over sentiments across Asia. A concerning highlight was the Morgan Stanley report which pointed out that global funds had further reduced their holdings of Chinese stocks in September. This trimmed positioning is the weakest observed since 2020.

Vey-Sern Ling, a notable voice from Union Bancaire Privee, opined that the current investor base appears to lean towards a negative stance on China. The reasons? A combination of the ongoing holidays and concerns about the Federal Reserve’s stance on higher interest rates for extended periods.

Hong Kong-listed equities have a stronger linkage to foreign funds when compared to their onshore Chinese counterparts. This makes them typically more sensitive to global happenings. With the Federal Reserve signaling a potentially tighter monetary policy, Asian shares seemed to be on a trajectory towards their lowest since the previous November.

Interestingly, during September’s tumultuous market movements, mainland traders had predominantly been a supportive force for Hong Kong stocks, as per Bloomberg data. Such southbound financial movements account for a substantial portion (around 15%) of the turnover in this Asian financial hub, noted Marvin Chen of Bloomberg Intelligence.

Both tech and financial sectors bore the brunt, pulling the HSCEI measure down. Despite fleeting optimism last Friday on anticipations of increased spending during China’s holidays, the index negated all its gains. The mainland Chinese market continues its pause in trading activities this week. Looking forward, Golden Week’s data is eyed keenly by analysts like David Chao from Invesco Asset Management. The week typically sees a spike in new home sales, making its data a potential indicator of the property market’s trajectory for the remaining year.