A sharp sell-off in Hong Kong shares on Wednesday could see further losses.
HK50 – Daily Chart
The HK50 index has hit resistance for a third time at 25,764. That is likely to be a near-term high, and selling volume picked up on Wednesday, with the price trading at the March highs. There are various levels, down to 22,750, that could add support for a healthy correction.
The price gap between A shares and H shares has recently narrowed to a five-year low, and both markets have upside potential, according to HSBC. Investors should shift to a more balanced view of Chinese shares on the mainland and in Hong Kong, analysts added.
After rallies of 26% in Hong Kong’s H shares and 13% in A shares, the usually high discount on H shares had shrunk to a five-year low, the bank noted. HSBC believes that the momentum of both classes would continue due to abundant liquidity of domestic investors, growing corporate profitability and recent policy attempts to boost consumption.
Purchasing power in the onshore market is another growing factor, and daily A-share trading volume surged to 2.5 trillion yuan (US$349 billion) this month. UBS Group’s James Wang said that those trends could add upside to the A market.
“We may see the A-H premium widen again from current levels,” he said. “We believe the risk‑return appeal of H shares has weakened, as the market is institution‑driven”.
However, a surge of Chinese companies offering new shares in Hong Kong could be a boost to liquidity. It has been an impressive rise over the last four months, but a third failure to break this resistance level is a likely sign of a pullback in the near term.
