(Bloomberg) -- A wave of selling from across the border is keeping Hong Kong stocks’ world-beating performance in check.
The Hang Seng Index slipped 0.1 percent Thursday, lagging most of Asia and reversing an early rally of as much as 0.9 percent that had been spurred by dovish comments from Federal Reserve Chairman Jerome Powell. The gauge is still up 6.7 percent in November, the top major equity benchmark worldwide. Tencent Holdings Ltd. has contributed a quarter of the gains.
Mainland investors have been selling Hong Kong’s latest rebound, dumping a net $637 million of the city’s shares via exchange links in six days, the longest selling streak since August. While the Hang Seng Index is on track for its biggest month-on-month comeback in seven years -- a recovery that’s taken a gauge of buying momentum to a five-month high -- obstacles remain before bulls can take back control. Traders are also waiting for this weekend’s meeting between presidents Xi Jinping and Donald Trump.
“Hong Kong stocks have largely priced in expectations of fewer U.S. rate hikes,” said Daniel So, a strategist with CMB International Securities Ltd in Hong Kong. “The key event to watch remains the G20 meeting, so investors choose to lock in profits amid uncertainties.”
As one of Asia’s largest and most open equity markets, Hong Kong typically acts as a barometer of global liquidity expectations and macroeconomic concerns. Throw in a currency peg to the greenback and a property bubble, and the city’s stocks become even more sensitive to the pace of Fed hikes. China’s economy is a concern given rising bond defaults and real estate jitters.
Some strategists remain cautious. JPMorgan Chase & Co (NYSE:JPM). and Goldman Sachs Group Inc (NYSE:GS). have underweight ratings on the MSCI Hong Kong Index, which doesn’t include Chinese companies such as Tencent that dominate the Hang Seng Index.
This month’s rally comes after the gauge was bludgeoned by concern that tightening U.S. monetary policy and a slowing Chinese economy will hurt earnings. The Hang Seng gauge is still down 11 percent this year, though it’s done a lot better than the Shanghai benchmark, which languishes at the bottom with a 21 percent loss. The Shanghai gauge rose 0.3 percent Thursday.
