EBC Markets Briefing | HK stocks could hit a rough patch in 2025

HK stocks jumped by the most in 18 months on 2 October after China Beijing announced a slew of policy easing measures in a rare briefing from central bank governor Pan Gongsheng.

Short covering may have driven the outsized gains, according to JPMorgan. The short sales ratio as a percentage of total market turnover dipped to one standard deviation below the average since 2016.

But concerns remain if the rally is sustainable. Given repeated false dawns, “sizable allocations will likely be cautious, particularly after the Republican party recorded a sweep in the elections.

Mainland Chinese investors snapped up a record amount of the stocks amid a revival of animal spirits and a weakening yuan. Shares in Alibaba were among the most purchase due to Connect inclusion.

Lower rates could help drive steady inflows into emerging markets from the US, quenching liquidity thirst in the shrivelling HK market which has fallen for four years in a row.

However, Powell’s remark in December’s meeting showed policymakers are starting to reckon with the prospects for sweeping economic changes under a Trump administration.

In 2007 and 2019 when the Fed began an easing cycle, the Hang Seng index registered strong gains within the two years. But the rally halted the following year on both occasions, dragged lower by political tailwind.

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