Chinese Stocks in Hong Kong Set for Biggest Two-Day Drop in 2025

Chinese stocks listed in Hong Kong are on track for their biggest two-day drop since October 9, 2024, as investors grapple with a lack of fresh catalysts and bearish sentiment. The Hang Seng China Enterprises Index slid as much as 2.7%, while the CSI 300 Index on the mainland dropped 1.6%. Technology shares, which have been the market's driving force, bore the brunt of the selling, with Xiaomi Corp. and Alibaba Group Holding Ltd. each losing more than 3%.

The sell-off comes after a blistering rally that has left many investors questioning the sustainability of the gains. BofA Securities warned of a "meaningful correction soon," while Morgan Stanley sees volatility ahead, noting that onshore investor sentiment has cooled. Mainland investors, who have been a key support for Hong Kong stocks, sold a net HK$1 billion ($129 million) of Hong Kong shares as of mid-day break on Friday, after withdrawing HK$ 4 billion on Thursday.

Profit-taking pressure is also rising on Hong Kong-listed tech stocks following their earnings. Alvin Ngan, an analyst at Zhongtai Financial International Ltd., wrote in a note, "The valuation gap between Chinese and US tech stocks has significantly narrowed after a correction in US stocks." This has led to mixed reactions to earnings reports, with upbeat expectations priced in.

Despite the sell-off, the Hang Seng Tech Index is still about 26% higher for the year, indicating that the overall sentiment towards tech stocks remains positive. Tech earnings have been largely positive so far, with Xiaomi Corp. hiking its 2025 delivery target and Tencent’s revenue rising a better-than-projected 11% in the final quarter, with net income almost doubling.

However, the implications for future earnings reports are mixed. Investors may be looking for more than just positive earnings; they may be looking for earnings that exceed expectations and justify the high valuations of these stocks. The coming week may offer investors some fresh cues as a spate of companies — including from some of China’s biggest banks and consumer firms — are due to report their results.



The sell-off in Chinese stocks comes as deflationary pressures in China continue to mount, with February’s consumer prices posting the steepest drop in 13 months and producer prices continuing their fall to 29 months. This has dampened sentiment and added to the pressure on the market.

The coming week may offer investors some fresh cues as a spate of companies — including from some of China’s biggest banks and consumer firms — are due to report their results. The Hang Seng China Enterprises Index slid as much as 2.7%, headed for its steepest two-day drop since October 9. Technology shares bore the brunt of the selling after powering the market for most of the year. Xiaomi Corp. and Alibaba Group Holding Ltd. lost more than 3% each. Onshore, the CSI 300 Index slid 1.6%.



The Hang Seng Tech Index dropped more than 3% on Friday. Even with that, the gauge is about 26% higher for the year. Tech earnings have been largely positive so far, but share reactions have been mixed as upbeat expectations were priced in. Xiaomi Corp. hiked its 2025 delivery target, while Tencent’s revenue rose a better-than-projected 11% in the final quarter and net income almost doubled. Food delivery giant Meituan is due to report results Friday.