Hong Kong Stocks Surge 9% in 2024, Fueled by Tech Rally and Policy Support

Hong Kong stocks surged 9% this year, driven by tech rally, cheap valuations, and policy support from Beijing. The Hang Seng Index closed at 19,115.06, adding over $1 trillion in capitalization, making it the best performer among major global equity benchmarks.

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Nitish Verma
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Hong Kong Stocks Surge 9% in 2024, Fueled by Tech Rally and Policy Support

Hong Kong Stocks Surge 9% in 2024, Fueled by Tech Rally and Policy Support

Hong Kong stocks have surged 9% this year, driven by a tech rally, cheap valuations, and policy support from Beijing, despite mounting risks from geopolitical tensions and uncertainty over China's economy. The Hang Seng Index closed at 19,115.06 on Monday, a level not seen since August, adding more than US$1 trillion (HKS$7.82 trillion) in capitalization back to the stock market and making it the best performer among major global equity benchmarks.

Why this matters: The surge in Hong Kong stocks has significant implications for global markets, as it could signal a shift in investor sentiment towards emerging markets and away from traditional safe-haven assets. Moreover, a sustained recovery in Hong Kong's stock market could have a positive impact on China's economy, which is a key driver of global growth.

The rally is fueled by several key drivers, including policy support from China through a slew of measures to boost local capital markets and lift confidence. Fund managers are also scouting for better value and abandoning overpriced markets elsewhere, while undervalued Chinese equities are attracting global funds. Economic data showing more signs of stabilization has further contributed to the positive sentiment.

Jason Chan, senior investment strategist at Bank of East Asia, noted, "A slew of support measures for local capital markets have helped lift confidence, while the economic data has also shown more signs of stabilisation... The market still has more room to run with support from corporate earnings and economic data." Winnie Wu, chief China equity strategist at Bank of America, added, "While the market focused a lot on geopolitics and policies in the past two years, investors are more focused on fundamentals now... The rebound should help rebuild market confidence and attract more investors to revisit the China investment thesis."

Despite the rally, risks and challenges remain. Geopolitical tensions and uncertainty over China's economy continue to be a concern. The next few weeks could prove tricky with more earnings and macro data releases, including China home prices and industrial production reports due on Friday. CICC strategists caution that fundamentals and companies' earnings outlook have yet to show substantial improvements, and a market breather or pullback may not be surprising.

On Friday, the Hang Seng Index surged 2.3% while the Hang Seng China Enterprises Index climbed 2.4%, driven by reports that Chinese authorities are considering reducing the dividend tax for mainland investors in Hong Kong stocks. High dividend stocks, particularly Chinese banks, telecoms, and energy companies, led the gains. The Hong Kong Exchange and Chinese securities firms also gained significantly, anticipating a higher volume of mainland investors buying Hong Kong stocks via the Stock Connect program.

China's exports rebounded in April 2024, growing 1.5% year on year in USD terms, driven by a 13.0% Y-Y increase in exports to ASEAN economies, primarily shipments of motor vehicles and ships. CPI inflation picked up to 0.3% Y-Y in April, driven by increases in service prices, particularly tourism-related spending during the Qingming holiday. However, credit growth slowed sharply, and the domestic automotive market remained sluggish with a decline in passenger vehicle sales.

As Hong Kong stocks continue their world-beating rally, investors remain cautiously optimistic. The upcoming earnings announcements from tech giants Alibaba and Tencent on Tuesday, along with key China economic data on home prices and industrial production due Friday, will put the market's resilience to the test. While the dividend tax cut and policy support have injected confidence, the strength of China's economic recovery will be a crucial factor in determining the sustainability of the Hong Kong stock market's surge.

Key Takeaways

  • Hong Kong stocks surge 9% in 2024, driven by tech rally and policy support.
  • Hang Seng Index reaches 19,115.06, adding $1 trillion in market capitalization.
  • Rally fueled by cheap valuations, policy support, and stabilizing economic data.
  • Investors cautiously optimistic, but geopolitical risks and China's economy remain concerns.
  • Upcoming earnings and economic data releases will test market resilience.