Investors fear disruption to the 3-month rally in Hong Kong’s stock market has just started

Investors are beginning to question if the 7 per cent decline in the Hang Seng Index since January 27 has further to go

Foreign funds’ purchases of Chinese stocks have slowed down to US$1.3 billion in February versus a record US$19.4 billion in January

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The Hang Seng Index has fallen 7 per cent since January 27. A slew of factors could drag the benchmark lower, market observers warned. Photo: Jiaxing Li

Published: 7:30am, 15 Feb 2023Updated: 8:23am, 15 Feb 2023

The market rally in Hong Kong has come up against an unexpected triple whammy of geopolitical risks, a tighter regulatory environment and the Federal Reserve rate outlook.

The US-China tension triggered by the spy balloons, imminent restrictions to curb capital outflows in China and a tighter Fed policy outlook have hobbled the 54 per cent gain in the Hang Seng Index following the boost from the border reopening three months ago. Some analysts and money managers are starting to question if the 7 per cent decline since the rally peaked on January 27 has more room to go.

MegaTrust Investment’s CEO Qi Wang cautioned in January that the benchmark index could slump by 10 to 18 per cent over the next two months, while Grow Investment’s strategist Hong Hao said last week China’s recovery will be tortuous.

The Hang Seng Index has fallen by an average of 11.7 per cent after a bull run based on market history in the past 10 years, and the decline lasts for two to three months, Ou Yafei, an analyst at GF Securities in Guangzhou, said in a note on Monday.

“The current trend is accompanied by volatile expectations for US-China divergences,” Ou said. Other risks, including tightening liquidity globally and economic uncertainty in China, are also clouding Hong Kong’s market outlook, he added.

Foreign funds appear to have dialled back bets and have slowed down the buying spree. They have only bought 9 billion yuan (US$1.3 billion) this month as of Monday, compared with the record US$19.4 billion inflow in January, according to Stock Connect data.

Investors fear disruption to the 3-month rally in Hong Kong’s stock market has just started

Investors are beginning to question if the 7 per cent decline in the Hang Seng Index since January 27 has further to go Foreign funds’ purchases of Chinese stocks have slowed down to US$1.3 billion in February versus a record US$19.4 billion in January

Investors are beginning to question if the 7 per cent decline in the Hang Seng Index since January 27 has further to go

Foreign funds’ purchases of Chinese stocks have slowed down to US$1.3 billion in February versus a record US$19.4 billion in January