(Bloomberg) — Chinese investors are pulling back from Hong Kong’s stocks at the fastest pace in more than five years, threatening to deepen a selloff.
Onshore traders have sold a net HK$24 billion ($3.1 billion) of Hong Kong shares through a trading link in October through Thursday, according to data compiled by Bloomberg, putting the month on track for the biggest outflow since 2021.
Mainland investors have traditionally been staunch buyers of Hong Kong stocks, providing support during market downturns. Their exit bodes ill for the financial hub, where stocks have been on a three-month decline on waning enthusiasm for artificial intelligence plays and rising funding costs. The Hang Seng Index has historically suffered extended pullbacks when Chinese flows turned negative.
“The Hong Kong market could still correct another 10% to 15% before establishing a bottom,” said Jasmine Duan, senior investment strategist at RBC Wealth Management Asia. “The market remains most sensitive to US Treasury yield movements and fund flow dynamics.”
Technology stocks have borne the brunt of the selloff. Chipmaker Semiconductor Manufacturing International Corp., e-commerce platform Alibaba Group Holding Ltd. and electric vehicle producer Xiaomi Corp. are among those heavily sold by mainland investors.
The benchmark Hang Seng gauge has lost 6.7% this month, set for the biggest decline since June, and the Hang Seng Tech Index is close to erasing all of its gains spurred by the broad monetary stimulus unleashed by Beijing in September 2024.
For many Hong Kong-listed firms, “investors are still a bit concerned about their higher capex that may impact their margins,” said Scarlett Liu, APAC equity derivatives strategist at BNP Paribas. “We have seen some so-called ‘memory losers’ in offshore tech, including some consumer electronics and EV names that are suffering from higher costs.”
A lackluster start to the earnings season and Beijing’s reluctance to roll out forceful fiscal stimulus have also disappointed investors. Chinese insurer Ping An Insurance (Group) Co. reported a profit slump this week on falling investment returns, while beer maker Tsingtao Brewery Co. missed estimates.
Collapsing earnings estimates are weighing on valuations, said Jason Lemire, chief investment officer at Bold Wealth Partners Inc. “What I’d be looking for to potentially change my mind include a moderation in negative earnings revisions and any form of reduction in competitive pressures.”
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