The external market has been reporting good news, but the performance of the Hong Kong stock market today is not good. In the morning session, the three major indexes of the Hong Kong stock market fell by more than 1% at one point, and then stabilized and rebounded, but the strength was relatively moderate. However, in the afternoon, there was a sudden change in the Hong Kong stock market. The major indexes continued to rise, with the Hang Seng Index and the Hang Seng Tech Index both turning positive. Kuaishou and Nio rose by nearly 4%, and Meituan rose by over 3%. It is worth noting that the A50 index also remained strong, with a significantly stronger trend than the Hong Kong stock market.

Analysts believe that it may be necessary to look at it from both internal and external perspectives.

Firstly, from internal reasons, on the 14th, the National Bureau of Statistics released data showing that in August, the overall decline in the sales prices of commercial residences in 70 large and medium-sized cities in China widened. However, bullish signals have also emerged, with the decline in new commercial residential sales prices in first-tier cities narrowing. In addition, the high-level expression of "firmly and resolutely completing the annual economic and social target tasks" has once again released expectations of easing measures.

Secondly, from an external perspective, on the one hand, there is the trade dispute, as the US Trade Representative's Office announced an increase in tariffs on some Chinese goods. This move was already anticipated by the market, and this time is considered as bearish sentiment realization; on the other hand, the continued appreciation of the Japanese Yen, as the yen and other currencies strengthened in early Asian trading. However, due to the Japanese stock market not opening today, concerns about carry trades in the Asia-Pacific market eased.

Sudden reversal in the Hong Kong stock market

In the morning session today, the three major indexes of the Hong Kong stock market all fell by more than 1%, with the Hang Seng Tech Index experiencing a particularly large decline. In terms of structure, mainland real estate stocks, domestic demand stocks, and biomedical stocks almost all experienced significant declines. Hong Kong aviation stocks all plunged at one point, with China East Air dropping by nearly 5%, China South Air falling by over 3.2%, Air China Limited, Peking Capital Airport both falling by over 2%. Mainland real estate stocks in the Hong Kong market collectively plummeted, with Sino-Ocean Group dropping by over 11%, A-Living falling by 10%, R&F Properties dropping by 5.9%, all setting new historical lows. CG Services fell by 6.8%, China Vanke fell by 4.8%. Biomedical stocks in the Hong Kong market also saw a volatile pullback, with Remegen falling by nearly 6%, Beigene falling by nearly 4%, Kingsway Biotech, Tigermed both falling by 1.5%, Wuxi Bio dropping by 1.2%. In addition, Bilibili fell by nearly 6%, Nongfu Spring dropped by over 4%, JD Health fell by nearly 4%, China Res Land, NetEase, Mengniu Dairy all fell by over 3.5%.

However, there was a sudden change in the afternoon session of the Hong Kong stock market. Major indexes continued to rise, with the Hang Seng Index and Hang Seng Tech Index both turning positive. Kuaishou, Nio Inc. rose by nearly 4%, Meituan rose by over 3%.

Interestingly, in the morning session today, the A50 did not follow the decline of the Hong Kong stock market, instead showing a small increase. However, the renminbi did not follow the strengthening of the yen.

What is the reason?

Looking at the structure of the decline in the Hong Kong stock market this morning, it still reflects the economic reality to some extent. Internally, the real estate data that foreign capital is most concerned about is still weak. On the 14th, the National Bureau of Statistics announced the fluctuation of sales prices of residential properties in 70 large and medium-sized cities in August. According to media reports based on data from the National Bureau of Statistics, the price index for new residential properties in 70 large and medium-sized cities in August fell by 5.3% year-on-year, marking the largest decline since May 2015. On a monthly basis, it fell by 0.7% in August, the 14th consecutive month of decline.

However, on the one hand, there is a positive signal in these data: the price decline of new residential properties in first-tier cities is narrowing; on the other hand, expectations of stimulus are strengthening once again. Last week, the market once again circulated heavy information: China will cut interest rates on over 5 trillion USD of existing housing loans as early as this month, aiming to stimulate consumption by reducing borrowing costs for millions of families.

Looking from outside, on one hand, currencies such as the Japanese yen and the US dollar strengthened in the early Asian session. The global economy and market research team at the Commonwealth Bank of Australia pointed out in a research report that the Federal Reserve and the Bank of Japan will both hold monetary policy meetings this week, and that if the market is concerned about the similarity of monetary policies between the two, the yen may fall to a low point below 140 against the dollar.

Today, the USD/JPY fell to 140.25, the lowest in over a year. Recently, the appreciation of the yen often corresponds to the decline in the Asia-Pacific equity markets, but today the stock markets in Singapore and Taiwan did not react much. This may imply that concerns about the reversal of the yen carry trade in the market have ended.

Subsequent expectations

In fact, the recent performance of the Hong Kong stock market has been stronger than that of the A-share market. From August 7th to September 13th, the Hang Seng Index rose by 4.3%, while the Shanghai Composite Index fell by 5.7% during the same period. Since August 7th, the Hang Seng Index has outperformed A-shares. Specifically, from August 7th to September 13th, the Hang Seng Index and the Hang Seng Tech Index increased by 4.3% and 4.1% respectively, while the Shanghai Composite Index and the ChiNext Price Index both declined by 5.7% during the same period.

China International Capital Corporation (CICC) stated that the US stock market rebounded significantly under the influence of factors such as expectations of a rate cut by the Federal Reserve, while in contrast, the A-share market weakened under relatively weak domestic economic data and policy expectations. Against this background, it is not difficult to understand the Hong Kong stock market's independent and differentiated volatile trend from the A-share market and overseas markets, reflecting its characteristic of "Chinese assets + foreign capital". Due to its sensitivity to external liquidity and the arrangement of the linked exchange rate, the Hong Kong stock market has greater flexibility than the A-share market.

Everbright Securities believes that the recent divergence in performance between the Hong Kong stock market and the A-share market is mainly due to the following reasons: the semi-annual report performance of the Hong Kong stock market is slightly stronger than that of the A-share market; recently, the market has been more optimistic about the rate cut by the Federal Reserve, and the Hong Kong stock market, as an offshore market, has benefited more; the Hong Kong stock market has undergone a more sufficient adjustment in the previous period, with a higher dividend yield.

Looking back at history, there have been several instances of market divergence between the A-share market and the Hong Kong stock market. Unless there are major risk factors, the duration of the performance divergence between the A-share market and the Hong Kong stock market is usually short. Looking forward, in the short term, the Hong Kong stock market may still have stronger resilience than the A-share market, but a significant rebound in both the Hong Kong stock market and the A-share market may still require waiting for fundamental factors and policy signals.

Analysts believe that, under the current circumstances, both the Hong Kong stock market and the A-share market need policies as triggers. If China's stimulus policies can timely follow and exceed expectations after the Fed rate cut, the market may usher in a wave of prosperity.

Editor/Lambor