Hong Kong shares have lagged behind other key international financial markets during the first six months of this year, according to analysts who believe this pattern may continue due to weak retail demand affecting Chinese online companies and long-standing artificial intelligence-related trading activities potentially increasing the disparity in returns.
An oversupply of shares due to the expiration of IPO lock-up periods may present an additional risk during this quarter, leading the city's stock market to take swift action through compensatory steps. Such measures involved reducing transaction hurdles for retail investors, potentially expanding the... Stock Connect programme To draw in Mainland investors and expedite the addition of popular technology stocks to major indices.
An 11 percent decrease in the Hang Seng Index caused Hong Kong to become one of the limited significant markets that concluded the six-month period with a decline. In comparison, the S&P 500 rose by 20 percent and the Nasdaq-100 rose 10 percent during the same time frame, with investors investing heavily in artificial intelligence stocks, pushing both indices to new all-time peaks in June following the decline of concerns about an oil crisis caused by conflict.
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Even across Asia, Hong Kong stocks lagged behind those of South Korea, Taiwan, and Japan, where leading firms have stronger ties to the global AI supply chain. South Korea's Kospi index rose 101 percent between January and June, driven by increased demand for memory chips from Samsung Electronics and SK Hynix, while Taiwan Semiconductor Manufacturing Co raised the island's Taiex index by 60 percent.
The gap may grow even larger, as SK Hynix's upcoming Nasdaq debut this month is expected to boost the intense AI market, confirming the limited availability of the equipment essential for advanced technologies.
At the same time, an unforeseen decline in China's retail sales during May signaled potential challenges for company profits, particularly affecting major companies such as Alibaba Group Holding and Meituan, which have significant influence over the main market index. Alibaba holds the South China Morning Post.
"Structural opportunities exist in Hong Kong's market only when there is a significant improvement in expectations regarding company profits," noted Zhang Sida, an analyst from Guoyuan International.
An immediate upward trend is improbable since the market must adjust to the impact on liquidity caused by a firm stance from the Federal Reserve and potential interest rate increases from the Bank of Japan.
The Beijing government's actions against unauthorized foreign stock accounts opened by mainland investors Hong Kong also experienced a drain of liquidity. In May, three online brokerage firms, such as Futu Securities International and Tiger Brokers, faced penalties and were instructed to halt processing purchase orders from mainland Chinese investors.
Approximately HK$850 billion (US$108.4 billion) in stocks were anticipated to enter the Hong Kong market during the third quarter following the expiration of initial public offering lock-up agreements, representing the largest influx for this time frame ever recorded, as per brokerage information. The volume was expected to reach its maximum in September, with assets exceeding HK$470 billion becoming eligible for open-market trading.
As part of an effort to enhance trade activity and market fluidity, HKEX Group Hong Kong Stock Exchange and Clearing Corporation HKEX Limited Hong Kong Futures Exchange and Clearing Company Hang Seng Exchange and Clearance Ltd. Reduced the stock trading limit for investors, starting this Thursday. The lowest amount required for purchasing stocks will be cut in half to HK$1,000, and the smallest purchase quantity will be adjusted into eight levels, varying from one share up to 10,000 shares, according to an announcement made on Tuesday.
Although the overall market struggled during the second quarter, certain areas showed positive developments.
Chinese artificial intelligence model development company Knowledge Atlas Technology, better known as Zhipu It briefly reached a market valuation of over HK$1 trillion last month, indicating that the AI sector was beginning to show promise in Hong Kong. Zhipu was included in the Hang Seng Tech Index on June 8, although it hasn't been incorporated into the broader Hang Seng Index since its initial public offering in January.
Investors ought to consider high-dividend stocks as protection from unpredictability in Hong Kong’s financial landscape, including telecommunications companies, consumer-related shares, and utility firms, as stated by China Galaxy Securities, a government-backed securities firm and investment bank.
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The article was first published on the South China Morning Post (www.scmp.com), a top-tier news outlet covering developments in China and Asia.
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