Hong Kong’s bull market leaves China behind

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.Hong Kong’s bull market is leaving China behind, in an indication {that a} lacklustre financial restoration and commerce tensions with the US have weighed on investor sentiment within the mainland.Equities in mainland China are flat to date this yr, in contrast with a 20 per cent acquire for Hong Kong’s Dangle Seng index, the town’s largest year-to-date outperformance in opposition to the mainland since 2008. Hong Kong’s bull run has been pushed by document funding flows from mainland China amid post-DeepSeek enthusiasm for expertise corporations resembling Alibaba and Tencent, which aren’t listed on the mainland.However the mainland inventory market, which has a better variety of corporations in conventional sectors resembling heavy trade, property and vitality, has sputtered. Deflationary pressures, weak client sentiment and falling home costs have harm investor sentiment for mainland equities, often known as A-shares.“A-shares higher symbolize the broader Chinese language financial system,” mentioned Dong Chen, chief Asia strategist at Pictet Asset Administration. “You take a look at the broader financial system, it’s nonetheless bottoming however not choosing up but . . . basically, we’d like stronger stimulus.”A-shares rallied in September final yr after authorities supplied help for the inventory market. Buyers entered 2025 optimistic that Beijing would possibly introduce extra fiscal stimulus to spice up the financial system and markets, however these measures have didn’t materialise.China’s inventory market is especially delicate to the nation’s 200mn or so retail traders. Whereas Beijing has stepped up efforts to encourage institutional traders to purchase and maintain shares over lengthy intervals, retail traders nonetheless comprise a majority of buying and selling within the mainland market.“For the mainland market to take off you want retail to leap in with each ft,” mentioned Ajay Rajadhyaksha, world chair of analysis at Barclays.Margin buying and selling in A-shares, used as a proxy for Chinese language retail investor sentiment, has been flat since April. Each day turnover on the Shanghai and Shenzhen inventory exchanges has fallen after a surge in February following the discharge of DeepSeek.Some content material couldn’t load. Examine your web connection or browser settings.Retail traders have been harm by a years-long drop in home costs after a authorities effort to rein in property builders’ debt led to the default of a number of builders. A big share of Chinese language households’ wealth is held in property.Throughout a cupboard assembly final month, Chinese language Premier Li Qiang pledged better efforts to stimulate consumption, enhance actual property demand and enhance family wealth, however analysts mentioned insurance policies to date this yr, together with a trade-in programme for electronics, wouldn’t reverse sentiment.“In actuality, the stimulus coverage help for property and consumption remains to be restricted and slim,” mentioned Winnie Wu, chief China fairness strategist at BofA World Analysis, including that the trade-in programme solely “frontloaded” consumption.Rising US-China tensions haven’t helped. Juliana Hansveden, an rising markets portfolio supervisor at Ninety One, mentioned Beijing may very well be holding off on extra forceful stimulus measures amid uncertainty over commerce negotiations with the Trump administration.Overseas curiosity in Chinese language equities has dropped, though it has change into harder to measure after authorities halted knowledge on northbound flows within the Inventory Join programme final yr. Chinese language fairness alternate traded funds domiciled in North America and Europe had internet outflows of $1.6bn for the yr to this point, in line with a Monetary Instances evaluation.“For lots of US-based traders, China is only a no-go,” mentioned Pictet’s Chen.RecommendedSome traders level to Beijing’s optimistic rhetoric round consumption and the non-public sector, in addition to progressive corporations buying and selling at enticing valuations, as causes to be optimistic.“The actual development may not be throughout the board, and that’s acceptable. It’s going to be extra of a bottom-up alternative,” mentioned Hansveden, referring to funding methods that target particular corporations’ efficiency somewhat than the macroeconomic atmosphere.“China and Hong Kong are the one markets that haven’t rallied to above pre-Covid ranges,” mentioned George Molina, head of Asian buying and selling at Franklin Templeton Investments. “From a valuation perspective it’s low cost . . . you may’t ignore it.”