In 2018, Hong Kong stocks started falling in June, three months before the global equity rout began. This was primarily driven by large capital outflows in response to a more hawkish Fed coupled with weaker domestic growth (PMIs fell to 48). The equity market correction that followed lasted until the end of the year. However, recent FX reserve data is showing signs of increased inflows, particularly from China. This is the result of a recent decision by Hong Kong to allow foreign firms to join the USD 4tn HSCI. We expect this to provide a liquidity boost, and also bring with it a small pipeline of IPOs from the mainland. Additionally, as Chinese authorities look to cool what looks like a bubble in equities, mainland investors can diversify by moving capital south. This should provide some support to Hong Kong stock prices.
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