Hong Kong Stocks Poised to Extend Winning Streak

The Hong Kong stock market finished two consecutive trading days higher, as investors reinforced expectations that the U.S. Federal Reserve (Fed) will not tighten its monetary policy. The Hang Seng Index (HSI) closed Friday at 23,350.03 points. This upward momentum suggests a potential positive opening for Asian markets on Monday.

During Friday's trading, the Hang Seng Index rallied 295.03 points, or 1.28 percent, to close at 23,350.03. On Thursday, the index had risen by 174 points, or 0.8 percent, ending the day at 23,055 points. This two-day rally was primarily driven by a tepid U.S. jobs report, which scaled back expectations for higher U.S. interest rates from the Fed, and easing tensions in the Middle East. Financial shares, property stocks, and technology companies were mostly in positive territory on Friday. Gold-related shares such as Zijin Mining (2899) and Laopu Gold (6181) outperformed, surging 9 percent and 5 percent respectively, as gold prices rebounded. Automakers also saw gains, with BYD (1211) advancing 7 percent, Geely Automobile (0175) 5 percent, and Li Auto (2015) 1 percent. However, chipmakers like SMIC (0981) and Hua Hong Semiconductor (1347) extended their losses from the previous trading day, slipping 3 percent and 4 percent respectively.

This positive momentum has somewhat alleviated concerns regarding the Hong Kong market's recent performance. The Hang Seng Index had declined 8.9 percent year-to-date. Regionally, mainland Chinese stock markets also rebounded, with the Shanghai Composite Index rising 0.37 percent to 4,043 points and the Shenzhen Component Index increasing 0.64 percent to 15,597 points. Across Asia, markets generally moved higher as AI concerns subsided. MSCI's benchmark for Asia climbed 2 percent, fueled by a 5.8 percent rebound in South Korea's Kospi index, which closed at 8,088.

The sharp slowdown in U.S. job growth in June signaled a cooling labor market, prompting investors to scale back expectations for higher U.S. interest rates from the Federal Reserve. This reinforced the belief that the Fed would maintain a supportive monetary policy stance. Furthermore, onshore investors showed increased interest in Hong Kong stocks in June, buying HK$27.1 billion (US$3.5 billion) worth of the city's equities via the cross-border Stock Connect program, reversing an outflow of HK$3.6 billion in May.

Analysts are closely monitoring June economic data, due in mid-July, for fresh clues on the strength of China's economic recovery. Morgan Stanley analysts believe that the incrementally larger representation of technology and innovation-heavy sectors in the A-share market will continue, suggesting the best opportunities at the index level are offered by the A-share market. Kelvin Lam, senior China+ economist at Pantheon Macroeconomics, anticipates that even if activity remains sluggish, policymakers are likely to stick to modest policy adjustments at the July Politburo meeting, rather than unveiling a massive stimulus. Overall, Asian markets are expected to tick higher on Monday.