Chinese stocks listed in Hong Kong slumped as trading resumed after a public holiday, suffering from general risk-off sentiment in the region and ongoing concerns about the country’s economic outlook.
The Hang Seng China Enterprises Index fell 3.2%, the most in almost three months. With mainland Chinese markets closed for Golden Week, support from mainland traders was lacking, while bets on higher US interest rates boosted the dollar and dampened sentiment across the region.
The poor start to the new quarter reflects the deep-rooted pessimism that has plagued Chinese equities for much of this year. Hong Kong’s broad losses on Tuesday came despite positive data from the Chinese holiday weekend that showed tourism receipts doubled from a year earlier. A report from Morgan Stanley showed global funds continued to reduce their holdings of Chinese equities in September, with their average position in the market falling to its lowest level since 2020.
“Chinese investors are absent this week due to the holidays, so it can be argued that the investor base is skewed towards those with a negative China attitude,” said Vey-Sern Ling, managing director at Union Bancaire Privee. Investor interest in China is waning and the sell-off in Hong Kong is being exacerbated by “concerns that the Fed may keep interest rates high for longer”, he added.
Hong Kong-listed stocks are more closely linked to foreign fund flows than Chinese onshore stocks, which tends to make them more vulnerable to global events. An indicator of Asian shares was on track for its lowest since November after aggressive signals from the US Federal Reserve intensified a sell-off in government bonds and boosted the dollar.
Mainland traders supported Hong Kong stocks during the September turmoil, buying net across trading links in all but three sessions, according to data compiled by Bloomberg. According to Marvin Chen, a strategist at Bloomberg Intelligence, the South accounts for about 15% of the Asian financial centre’s turnover.
Technology and financial stocks were among the biggest drags on the HSCEI index, which remains one of the world’s worst-performing major stock markets this year. The index lost all of Friday’s gains as hopes of a buying spree during the Chinese holidays lifted sentiment. Trading in mainland China remains closed this week.
With Golden Week typically a peak season for new home sales, this week’s data will be “a good indicator of what we can expect for the rest of the year for the property market,” said David Chao, Asia-Pacific ex-Japan strategist at Invesco Asset Management.