Hong Kong stocks hit a near three-month low: tech stocks plunge and lead the decline, Chinese economic concerns overshadow Asian markets

On December 16, Asian markets weakened, with Hong Kong stocks experiencing the largest decline. The Hang Seng Index closed at 25,139 points at midday, down 1.9%, hitting a low not seen since September 4. Of the 89 constituent stocks, only 5 closed in the green, indicating a clear rise in market risk aversion. The technology sector performed the worst, with the Hang Seng Tech Index falling 2.4%. Alibaba dropped 3.6% to HK$143.3, Tencent declined 1.4% to HK$594.5, Semiconductor Manufacturing International (SMIC) fell 3.6% to HK$62.35, Zijin Mining dropped 4.6% to HK$32.88, and China Hongqiao plummeted 5.8% to HK$30.08, with all declines exceeding expectations.

China’s Economic Growth Slowdown Dampens Market Confidence

Investors are concerned that the latest economic data reveal weakening growth momentum. November retail sales grew only 1.3% year-on-year, well below the expected 2.9%, marking a new low since the pandemic recovery began; fixed asset investment continues to contract with no signs of recovery; housing prices are sluggish, with the three major indicators weakening simultaneously, indicating insufficient domestic demand.

Market participants note that this set of economic data intensifies concerns over profit outlooks. Without clear fiscal policy support, highly anticipated tech and financial stocks are under valuation pressure. Nomura Holdings’ China economist Lu Ting predicts that without policy support, China’s GDP growth rate in the first half of 2026 could fall to 4.1%. Further measures such as a 10 basis point cut in the central bank’s interest rate and a half percentage point reduction in reserve requirements may be necessary to stabilize growth.

External Risks Rise, Global Capital Flows Uncertain

The decline in Asian stock markets is not an isolated event. Investors are generally cautious ahead of the US non-farm payrolls report, as strong employment data could weaken expectations of Fed rate cuts, further impacting high-valuation global assets. South Korea’s KOSPI and Taiwan Weighted Index declined in tandem, both within 1%. Bonds and safe-haven assets have become new safe havens for capital flows.

Hao Hong, Chief Investment Officer at Lotus Asset Management, pointed out that Beijing’s stimulus expectations are focused on consumption, and the relative performance of non-tech stocks is expected to continue for at least one quarter. From a valuation perspective, Chinese stocks with a P/E ratio around 12 times are at low levels and theoretically attractive. However, due to a lack of earnings upgrades and retail capital inflows, the market remains cautious. In contrast, A-shares are supported by domestic policy expectations and show resilience; Hong Kong stocks are more exposed to global capital flow fluctuations.

Investment Strategy Adjustment: Short-term Avoidance of High Valuations, Long-term Opportunities for Rebound

Given increased volatility in Asian markets, SPDB International analyst Melody Lai believes now is not the time to buy, as sentiment swings are intense. Value Partners remains optimistic about the long-term growth potential of AI and technology sectors, but recent interest in consumer sectors remains weak.

For Taiwanese and Asia-Pacific investors, short-term strategies include shifting to defensive consumption or value stocks, avoiding high-valuation tech sectors, and focusing on domestic demand industries benefiting from China’s stimulus measures. If Beijing increases fiscal support as expected in the first half of 2026, valuation recovery in Chinese stocks could be substantial, and the lagging position of the Hang Seng Tech Index may reverse. However, risks remain: if US employment data continues to strengthen, reducing rate cut expectations, risk asset rebounds could be further suppressed.

Overall, this correction reflects the pains of macroeconomic transition, with intertwined concerns over China’s growth outlook and tech sector rotation, testing investors’ strategic resolve. It is recommended to closely monitor Federal Reserve policies and subsequent measures from Beijing, maintain diversified allocations, and seize potential opportunities amid volatility.