Hong Kong stocks fall to quarterly lows, with tech stocks leading a 3% decline — underlying economic concerns

Stock Market Downtrend Spreads, Hong Kong Stocks Face Largest Pressure in Three Months

On December 16 during Asian trading hours, the Hong Kong stock market experienced a significant pullback. The Hang Seng Index dropped 1.9% to 25,139 points at midday, reaching its lowest level since early September, with nearly 95% of constituent stocks in the red. The Hang Seng Tech Index declined even more sharply, down 2.4%, with leading companies such as Alibaba, Tencent, China Hongqiao, Zijin Mining, and SMIC recording declines of 3% to 5.8%. Meanwhile, South Korea’s KOSPI and Taiwan Weighted Index also fell within 1%, as defensive assets and bonds became new targets for capital flows.

Weak Economic Data Sparks Market Vigilance

The fundamental driver behind the decline in Hong Kong stocks and the broader Asian markets stems from China’s economic fundamentals. The latest November economic data show retail sales increased by only 1.3% year-on-year, well below the expected 2.9%, and hitting a new low since the pandemic recovery began; at the same time, fixed asset investment continued to shrink, and the real estate market showed no signs of improvement. These figures reveal a clear softening of consumer momentum, with the sustainability of domestic demand recovery under severe scrutiny.

Investors are highly sensitive to this situation. China’s GDP growth forecast for the first half of 2026 may be lowered to 4.1%, implying that without policy support, economic growth could further decline. Although the growth rate for the first nine months reached 5.2%, and the annual target of 5% remains within reach, authorities have yet to signal large-scale stimulus measures. This policy vacuum has heightened market caution.

External Uncertainties and Liquidity Dilemmas

Market caution also stems from external factors. Investors are choosing to wait ahead of the release of the U.S. non-farm payroll report on December 17. Strong employment data could weaken expectations of Fed rate cuts, thereby impacting high-valuation global assets, especially technology stocks. This combination of internal and external headwinds has led to large-scale capital outflows from risk assets, shifting toward bonds and safe-haven instruments.

Valuation and Policy Expectation Battles

From a valuation perspective, China’s overall market price-to-earnings ratio is only about 12 times, making it attractive; however, the lack of earnings recovery and retail investor participation results in insufficient buying momentum. In contrast, A-shares benefit from domestic policy expectations and show relative resilience; Hong Kong stocks are more susceptible to global capital flows, resulting in higher volatility.

Market professionals predict that Beijing’s stimulus policies will focus on supporting consumption, with non-tech sectors expected to outperform at least until the first quarter of 2025. Additionally, if policies are implemented as expected in the first half of 2026, the lagging performance of the Hang Seng Tech Index may see a reversal opportunity.

Investment Strategy Recommendations

In light of increased volatility in Hong Kong and Asian markets, investors are advised to reassess their portfolio allocations:

In the short term, avoid high-valuation tech stocks and shift toward defensive consumer stocks and value-oriented assets, especially those benefiting from China’s domestic demand policies; meanwhile, closely monitor Federal Reserve policy developments and track details of Beijing’s stimulus measures.

Long-term, despite current volatility, there is potential for valuation recovery in Chinese stocks, and diversification remains a prudent strategy. Market adjustments often create investment opportunities; the key is to maintain patience and discipline amid uncertainty.

Conclusion

The decline in Hong Kong stocks and the overall pullback in Asian markets reflect the pains of macroeconomic transformation. Concerns over China’s growth, Federal Reserve policy uncertainties, and rotation within tech stocks are reshaping risk appetite. Investors need to closely monitor these variables and seek opportunities amid adjustments, aiming to capture rebounds when the next upward cycle arrives.