Hang Seng Falls 1.1%
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This week, the Hong Kong equity market faced broad pressure. The Hang Seng Index(HSI) declined by 1.1% for the week, while the Hang Seng TECH Index(HSTECH) performed even weaker, dropping 2.82%. Trading activity remained subdued: HSI’s final-day volume was 7.93% below its 50-day average, and HSTECH’s was 17.0% lower—indicating strong investor caution and a wait-and-see sentiment.
The pullback in Hong Kong stocks was primarily driven by external macro headwinds. On one hand, sentiment in A-shares improved and sustained southbound inflows—HK$3.371 billion net buying on December 19—supported a notable afternoon rebound in the HSI. On the other hand, volatility in U.S. tech stocks and movements in the U.S. dollar weighed on sentiment. Sector rotation was intense: lithium carbonate futures surged over 7%, lifting lithium-related equities; platinum-palladium futures hit their daily trading limits, boosting related resource stocks; meanwhile, previously strong precious metals stocks corrected. Although HKEX’s proposed reform to simplify board lot sizes is a long-term positive, the market remains largely reactive in the short term. Onshore RMB briefly broke through 7.03 per USD—the strongest level in 14 months—signaling restored foreign investor confidence in Chinese assets and providing underlying support to Hong Kong equities.
From a local policy perspective, the Hong Kong SAR government is accelerating capital market reforms to enhance international competitiveness. HKEX plans to streamline board lot structures—reducing over 40 existing lot sizes to just 8—and set upper and lower bounds for lot market values. This move is expected to lower retail participation barriers and improve liquidity for small- and mid-cap stocks. Additionally, the People’s Bank of China will issue RMB 40 billion of six-month central bank bills in Hong Kong on December 22 to strengthen offshore RMB liquidity management and reinforce Hong Kong’s status as the world’s largest offshore RMB hub. According to SWIFT data, the RMB accounted for 2.94% of global payments in November, firmly ranking sixth—laying the groundwork for greater long-term institutional allocation into Hong Kong equities. Overall, with the full-island customs closure of Hainan Free Trade Port now operational and the “zero-tariff” coverage significantly expanded, Hong Kong equities stand to benefit from enhanced cross-border consumption and capital flows. However, a self-sustained rally still awaits confirmation from more high-quality listings and a clear shift in global liquidity conditions.
At the sector level, the top three best-performing industries this week were Security/Sfty(G3999IG.HK) (+13.12%), Comml Svcs-Staffing(G1011IG.HK) (+10.2%), and Agricultural Operations(G1000IG.HK) (+5.6%). Notably, these sectors are largely defensive or policy-beneficiary plays, while previously strong tech and consumer electronics segments saw marked corrections—reflecting a flight to safety amid rising uncertainty.
In the U.S., all three major indices closed lower for the week: the Dow Jones Indus Actual(0DJIA) fell 1.04%, the S & P 500 Index(0S&P5) declined 0.77%, and the Nasdaq Composite(0NDQC) edged down 0.81%. On Friday, better-than-expected Micron earnings and favorable CPI data triggered a near 0.8% rebound in the S&P 500, ending a four-day losing streak—but the index still posted a weekly loss.
U.S. November CPI rose just 2.7% year-over-year, significantly below the 3.1% forecast; core inflation also eased to 2.6%, the lowest since 2021—bolstering market bets on Fed rate cuts. Meanwhile, nonfarm payrolls added 64,000 jobs (above expectations), yet the unemployment rate unexpectedly rose to 4.6%, and wage growth slowed—pointing to a “moderate cooling” rather than a sharp deterioration in the labor market. This mixed data left investors torn between optimism and caution: easing inflation opens room for monetary policy pivots, but conflicting labor signals cap expectations for aggressive easing. Against this backdrop, the “Magnificent Seven” tech stocks rallied collectively, led by Tesla (+3.45%). Overall, U.S. equities are transitioning from “AI narrative-driven” to “data-validated” momentum. Tech remains the core engine, but elevated valuations combined with policy uncertainty have significantly increased volatility.
The A-share market showed relative resilience, with the CSI 300(000300) down only 0.28% for the week. Trading activity cooled, with final-day volume 24.9% below the 50-day average—suggesting cautious new money.
Sector performance diverged sharply: commercial aerospace, computing hardware, defense, and memory chips gained strength in the afternoon, while previously hot sectors like photovoltaics and CPO continued to correct. Notably, newly listed Muxi Co., Ltd. (688802) surged 692.95% on its debut—a record for A-shares—highlighting strong market recognition of domestic hard-tech assets like GPU developers.
A-share momentum has been heavily policy-driven. The Central Commission for Financial and Economic Affairs explicitly designated “expanding domestic demand” as the top priority for 2026, reinforced by a recent Qiushi journal article by the General Secretary underscoring its strategic importance. Supporting measures rolled out swiftly: the Ministry of Commerce and two other agencies jointly launched 11 financial initiatives to boost consumption, including digital RMB red packets, auto trade-in loan subsidies, and support for “AI + Consumption” innovations. Additionally, Hainan Free Trade Port implemented island-wide customs closure on December 18, expanding zero-tariff items to 6,600 categories—directly benefiting duty-free retail, tourism, and cross-border e-commerce. However, underlying concerns persist: November retail sales grew just 1.3% YoY, real estate investment fell 15.9% YoY, and home prices in 70 cities broadly corrected—limiting upside potential.
The HK33 portfolio declined by an average of 0.49% this week, with 14 gainers and 19 decliners. Top performers included:
- China Sanjiang(02198) (+5.78%), with an O’Neil Score of 82, EPS Rating of 84, and industry rank #11—part of a strong chemical subsector;
- Tanwan(09890) (+5.5%), boasting a high RS Rating of 88 despite its industry rank of #163—indicating stock-specific strength;
- Gofintech Quant(00290) (+4.08%), ranked #39 in its industry (near the preferred threshold), with an EPS Rating of 84 and revenue surging 4,564.52% YoY.
In contrast, the portfolio added Midea Group(00300), AIA(01299), Zijin Mining(02899), Hansoh Pharma(03692), and CMOC(03993) this week while removing 11 stocks—clearly shifting strategy back toward the CAN SLIM model, emphasizing earnings quality and industry strength.
Technically, the Hang Seng Index currently trades above its 5-day (+0.73%) and 10-day (+0.44%) moving averages but below its 20-day (–0.24%) and 50-day (–1.06%) averages, indicating a short-term range-bound, slightly bearish pattern. Key support lies near 25,200 (recent platform low), with resistance around 26,000. The Hang Seng TECH Index shows weaker technicals—it has broken below both its 50-day (–5.01%) and 200-day (–1.87%) moving averages. Failure to quickly reclaim the 5,500 level could trigger further downside toward the 5,200 zone.
Southbound funds recorded net inflows of HK$21.619 billion this week—sharply reversing last week’s HK$3.443 billion outflow—demonstrating stronger mainland appetite for bargain hunting. Key buying focused on tech leaders and cyclical resource stocks, with Xiaomi Group frequently topping daily buy lists.
In summary, global markets are at a critical juncture where policy expectations and incoming data are in active tension. Hong Kong equities remain constrained by volatile external liquidity outlooks and the pace of domestic economic recovery, making a decisive trend unlikely in the near term. However, sustained southbound inflows and structural reforms—such as HKEX’s board lot simplification—provide a solid floor.
For now, investors are advised to stay calm and rational, avoid chasing rallies, and prioritize individual stocks with earnings beats and robust technical setups—navigating market swings with a disciplined, flexible approach.
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Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.
published on December 19, 2025