Mainland Chinese, Hong Kong stocks face bumpy fourth quarter as risks mount: analysts

Mainland Chinese and Hong Kong stocks may face a difficult fourth quarter as investors grapple with Beijing's limited stimulus measures, tighter financial conditions in the US, and a shift in focus towards artificial intelligence, according to analysts. Brokerages predict the markets will consolidate to digest the negatives before settling on a clearer direction.

CCB International forecasts the Hang Seng Index to trade between 22,500 and 26,000 over the next three months, with risks primarily on the downside. Sentiment on stocks has been declining, with rates traders now pricing a 47% chance of a quarter-point interest rate increase by the Federal Reserve in October, pushing US Treasury yields to multi-year highs.

China's growth risks have also fallen short of the lower end of its annual target. Beijing's recent support measures, such as mortgage subsidies and an expanded lending facility, are unlikely to boost domestic demand. The China CSI 300 Index dropped 13% in the third quarter, primarily due to a massive monthly decline in technology stocks.

The Hang Seng Index, on the other hand, gained 7.2% due to its limited exposure to AI-related investments. While some analysts remain optimistic, citing the pullback as an opportunity for stocks to rally, particularly in technology and commodity companies, others maintain a cautious outlook, viewing China as a stock-picking market with a preference for value and yield sectors.