Hong Kong stocks rallied on Friday, buoyed by better-than-expected economic data from China, suggesting a possible end to the incessant economic downturn. According to Barron’s, Hong Kong’s Hang Seng Index climbed 0.75 percent (+134.97 points), reaching 18,182.89. In contrast, the Shanghai Composite Index slipped by 0.28 percent (-8.81 points), closing at 3,117.74. The Shenzhen Composite Index on China’s second exchange dropped by 0.31 percent, shedding 5.90 points, ending at 1,911.12.
Hong Kong Stocks Rally: Igniting A Hope For The Stock Market
Hong Kong equities experienced their most bolstering daily gains in three months, driven by short sellers closing out bets against Chinese internet companies and investors gambling by snapping up shares, hoping that the recent sell-off in Chinese stocks had been overdone. The Hang Seng index surged by 4 percent on Friday, marking its best performance since early March, following weeks of selling that had pushed the benchmark nearly 20 percent lower from its January peak, pushing it into a bear market.
The Hong Kong stocks rally was led by Chinese internet stocks, with the Hang Seng Tech index surging by 5.3 percent. Notably, Tencent and Alibaba saw their shares rise by 6 percent and 6.7 percent, respectively, in Hong Kong.
The positive momentum in Hong Kong was influenced by an overnight rally in Chinese tech stocks on Wall Street. Tencent’s shares rose by 4.5 percent, and the Nasdaq Golden Dragons index, tracking large Chinese companies, finished the session up 4 percent.
“We would expect investors who bought Tencent shares in December to slow down the pace of declines in the stock and give some support at these levels.”
– Citi spokesperson
According to a trader at a Wall Street bank, investor support for Tencent was also boosted by a research note from Citigroup, which highlighted that Tencent’s US depositary receipts had fallen to levels at which most investors had bought in during a reopening rally for Chinese stocks late last year.
This surge from Chinese internet stocks could propel short sellers to close out their positions, a practice called ‘short covering’. Short covering appeared to be a significant driver of the rally in Hong Kong on Friday. However, some analysts remain cautious, citing concerns about the broader Chinese economy, which has generally seen worse-than-expected recent data.
Dickie Wong, head of research at Hong Kong-based Kingston Securities, had said that there was no doubt that the drivers of the Hong Kong stock rally included expectations in the global markets that the US Federal Reserve would not raise interest rates.
“There’s no long-only buying going and the big global guys aren’t involved. There’s nothing fundamental to this rally.”
Additionally, there is uncertainty about the longevity of these gains beyond a few sessions, with market experts expressing skepticism about the sustainability of the rally.
