Hong Kong Stocks Drop, Mainland Steady as Trump Appoints China Hawks

Photo : Reuters

On Wednesday, Hong Kong stocks experienced a notable decline, while mainland Chinese stocks remained relatively steady amid volatile trading. The market reaction came as investors continued to assess the implications of U.S. President-elect Donald Trump’s decision to appoint strong China critics to key positions within his cabinet.

Hong Kong’s Hang Seng Index dropped by 0.6% during the midday break, reaching a seven-week low. In contrast, China's blue-chip CSI 300 index saw a slight uptick of 0.1% after initially falling by as much as 0.6%. The Shanghai Composite index remained largely unchanged. The broader sentiment was dampened further as the Golden Dragon China Index dropped 4.5% overnight in New York, reflecting investor caution on Chinese stocks.

The news that Trump is likely to appoint Marco Rubio, a vocal critic of China, as Secretary of State and Mike Waltz, another outspoken China critic, as National Security Adviser, has created uncertainty in the markets. This has led to speculation that the incoming administration’s stance on China may be more confrontational than during Trump’s first term. 

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Jason Chan, a senior investment strategist at Bank of East Asia, noted that investors are keenly focused on Trump's cabinet picks to determine the direction of U.S.-China relations under the new administration. “Investors are now focused on Trump’s cabinet picks to gauge whether his China policy will be more hawkish than during his first term,” Chan said. He added that short-term sentiment on China is expected to remain weak, driven by the uncertainties surrounding Trump’s China policy.

In Hong Kong, the downturn in the property sector was a significant factor in the market's decline. A sub-index tracking property developers fell by 2.3%, dragging the broader index lower. The Hang Seng has lost nearly 15% since its peak in October, and the index is now at a seven-week low. This decline comes as the government has rolled out further support measures, but these have largely failed to meet investor expectations.

Onshore markets in mainland China showed some resilience, aided by a boost from energy stocks. The CSI Energy index gained 1%, helping to lift mainland stocks. Additionally, Nomura, the Japanese brokerage, raised its growth forecast for China, citing signs of an economic recovery. Nomura now expects the country's fourth-quarter GDP growth to reach 4.9%, up from the previous forecast of 4.4%. The annual GDP growth forecast for China was also revised upward to 4.8% from 4.7%, although Nomura maintained its 2025 growth estimate at 4%.

In currency markets, the Chinese yuan bounced back from a more than three-month low against the U.S. dollar. This rebound was aided by stronger-than-expected official midpoint guidance from the People's Bank of China, which provided support for the currency.

Overall, markets remain on edge as investors await further developments surrounding Trump’s China cabinet picks and their potential impact on the U.S.-China relationship. While mainland stocks showed some resilience, Hong Kong's markets remain under pressure, reflecting the broader uncertainty in the region.

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