Mainland Chinese and Hong Kong stock markets are expected to face a difficult final quarter of the year as investors grapple with a combination of lackluster stimulus efforts from Beijing, tighter financial conditions in the United States, and evolving investor sentiment around artificial intelligence-related trades. Analysts predict a period of consolidation as markets absorb these challenges and seek clearer direction.
According to brokerages including Zheshang Securities and CCB International, equity markets in both regions are likely to trade within narrow ranges in the coming months. CCB International, the investment banking arm of China Construction Bank, projected the Hang Seng Index to fluctuate between 22,500 and 26,000 over the next quarter, with a bias toward downside risk. The Hang Seng closed the third quarter at 24,613.27.
Investor sentiment has dampened amid expectations of further U.S. monetary tightening. Traders currently assign a 47 percent probability that the Federal Reserve will raise interest rates by a quarter percentage point at its October meeting, keeping U.S. Treasury yields near multi-year highs. At the same time, concerns persist that China’s economic growth may fall short of its targeted range this year.
Beijing’s recent supportive policies, including mortgage subsidies aimed at homebuyers and a reduction in the relending facility interest rate, have failed to significantly boost confidence. Many economists view these measures as insufficient to stimulate domestic demand meaningfully.
“The markets have entered a period of consolidation amid uncertainty of expectations about global rate increases, geopolitics and the shift in the AI narrative,” said Liao Jingchi, analyst at Zheshang Securities. He added that investors are still searching for a market bottom.
Performance in the third quarter underscores these pressures. China’s CSI 300 Index declined 12 percent, dragged down by a 31 percent plunge in the tech-heavy Star Market 50 gauge, marking its worst quarterly performance on record. In contrast, Hong Kong’s Hang Seng Index gained 7.6 percent, benefiting from limited exposure to AI stocks. Comparatively, the S&P 500 in the U.S. rose 2.3 percent, Japan’s Nikkei 225 dropped 4.7 percent, and South Korea’s Kospi fell 19 percent over the same period.
Beyond monetary tightening and inflation concerns, additional risks to equity markets in the final quarter include fiscal pressures in the U.S. and Japan, as well as ongoing trade tensions between China and the European Union. Cliff Zhao, strategist at CCB International, highlighted these factors as potential headwinds for equities.
Despite the challenges, some investors see value in the current downturn. China Asset Management, which oversees assets totaling 1.36 trillion yuan (approximately HK$1.59 trillion), noted that the recent pullback has created conditions for potential gains during upcoming earnings seasons, particularly in technology and commodity sectors. The firm attributed the recent low in the CSI 300 partly to risk hedging ahead of China’s National Day “golden week” holiday, citing low trading volumes and easing selling pressure as signs of limited further downside.
Meanwhile, official data provided a modest positive signal. China’s manufacturing purchasing managers’ index (PMI) rose to 50.1 in September from 49.8 in August, returning to expansion territory after two months of contraction, according to the National Bureau of Statistics.
However, the market response to Beijing’s latest stimulus actions, including mortgage subsidies and a reduced interest rate on pledged supplementary lending announced Tuesday, remained muted, reflecting investor skepticism about the effectiveness of these steps in addressing broader economic and market concerns.