(Bloomberg) — Hong Kong’s stocks have room to play catchup in what could be a volatile session on Friday, with Wall Street and Chinese companies listed in the U.S. still trading higher than levels before the Lunar New Year holiday.
While the overnight rout in Meta Platforms Inc. is likely to temper any advance, the city’s equities should benefit from signs that the Federal Reserve won’t be rushed on rate-hikes, and from a more upbeat picture of corporate earnings this week.
The Nasdaq Golden Dragon China Index — which includes many large Chinese technology companies — has jumped 5% since Hong Kong shares last traded at midday Monday, helped in part by encouraging commentary from the country’s cyberspace watchdog. The gauge slid 2.5% Thursday.
“It will be a wild ride in fits and starts,” said Wai Ho Leong, a strategist at Modular Asset Management. Overvalued big tech stocks are “the most vulnerable to corrective bouts,” he said, pointing toward the volatility seen in Nasdaq 100 Index in recent days.
Post-holiday jumps for equity benchmarks in Seoul, Singapore and Kuala Lumpur on Thursday provide some reassurance for the prospect of a positive open in Hong Kong. The U.S. tech selloff Thursday also showed signs of easing in late trading after Amazon.com Inc. and Snap Inc. soared on quarterly results.
Yet there are significant threats to a sustained recovery in Hong Kong and mainland stocks, even as an increasing number of global banks turn bullish on them. Mainland China markets will reopen on Monday.
Some investors continue to sell into rallies, China’s property market distress remains acute and the slowing pace of economic growth continues to weigh. Positive statements toward the technology sector have yet to undo the damage inflicted on the business models of many internet platforms over the past year.
On top of all this, the mainland’s CSI 300 Index entered a bear market last week despite Beijing’s efforts to bolster confidence going into the holiday, and the central bank’s earlier pivot to stimulus.
Hong Kong’s Hang Seng Index had fallen into a bear market much earlier, in August, and remains down more than 20% from its peak in February last year.
Still, there are many who expect Hong Kong equities to successfully navigate global volatility and start on a slightly upbeat note after the extended break.
“Hong Kong should have a good day to reflect positive developments during the Chinese New Year holiday,” said Hao Hong, chief strategist and head of research at Bocom International.
(Updates with comments from Modular Asset Management and Bocom International.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
