Zhi Tong Cai Jing·2025-11-23 02:30Core Viewpoint - The Hong Kong stock market has entered a correction phase since October, primarily due to previous significant gains, tightening dollar liquidity, and a decline in expectations for Federal Reserve rate cuts. However, the ongoing AI wave and the influx of incremental capital suggest that the bull market in Hong Kong stocks is likely to continue [1][2][13]. Market Adjustment - Since the beginning of the year, the Hong Kong stock market has performed well, with the Hang Seng Index and Hang Seng Tech reaching new highs in early October. However, by mid-October, the market began to adjust, with the Hang Seng Index experiencing a maximum decline of 5.1% and Hang Seng Tech a maximum decline of 8.1% [2]. - The Hang Seng Index and Hang Seng Tech recorded maximum gains of 47% and 61% respectively this year before entering the current adjustment phase [2]. Factors Influencing the Market - The tightening of dollar liquidity and the decline in expectations for Federal Reserve rate cuts have pressured the Hong Kong stock market. The U.S. government shutdown led to a temporary halt in government spending, causing dollar liquidity to tighten [3]. - Despite the end of the government shutdown, economic data remains unclear, leading to cautious Federal Reserve rate cut decisions. The market's expectation for a 25 basis point cut in December has dropped to 40% [3]. - The significant prior gains in the Hong Kong stock market, coupled with rising concerns over AI bubbles, have created selling pressure. The Hang Seng Tech Index has seen a maximum increase of 61% this year, while the Hang Seng Biotech Index has increased by 130% [3][8]. Historical Context of Market Corrections - In bull markets, adjustments are common, categorized into small corrections (average maximum decline of about 7%) and large corrections (average maximum decline of about 17%). Small corrections typically occur due to short-term market sentiment disturbances, while large corrections are often linked to liquidity tightening or external shocks [7][8]. - Historical data shows that small corrections in the Hang Seng Index average a maximum decline of 6.5% and last about 12 trading days, while large corrections average a maximum decline of 17% and last about 53 trading days [7][8]. Future Outlook - The tightening dollar liquidity is viewed as a short-term disturbance, and the AI wave is expected to continue. The release of previously accumulated liquidity following the end of the U.S. government shutdown may support the Hong Kong stock market [13]. - Incremental capital inflows and the gathering of quality assets suggest that the bull market in Hong Kong stocks may continue. The unique characteristics of Hong Kong assets, particularly in the context of the ongoing transformation in the domestic economy, enhance their attractiveness [13][14]. - Southbound capital is expected to continue flowing into the Hong Kong market, with over 1.3 trillion yuan already invested this year. This trend is likely to be supported by institutional investors, further propelling the market upward [14].