The soaring Chinese stock market saw a pause on Thursday as traders opted to take profits following a remarkable 30% surge from a low in September.
The Hang Seng China Enterprises Index plummeted by as much as 4.8%, the most significant decline in two years, signaling a halt to its 13-day winning streak.
The Hang Seng Index experienced a decline of over 4%, with Chinese developers leading losses following a significant surge recorded by a gauge tracking the sector on Wednesday. These circumstances developed amid a closure of mainland Chinese markets until October 7 for the Golden Week holidays.
With mainland markets closed, investors have turned to Hong Kong to ride the wave of momentum, evident in the high turnover of HK$434 billion ($55.9 billion) on Wednesday. The Hang Seng China gauge’s relative strength index surged to a record 91 on Wednesday, surpassing the 70 threshold that some traders consider a potential signal of overbought.
Though optimism has been prevalent that the ongoing rally differs from previous short-lived rebounds with increasing numbers of global money managers turning bullish on the market, concerns about a potential bubble have surfaced as equity benchmarks hit overbought levels.
Wong Kok Hoong, the head of institutional equities sales trading at Maybank Securities Pte, observed that profit-taking before the weekend and the impending reopening of the Chinese stock market played a role in the recent market behavior.
Meanwhile, there are indications that the rising Chinese consumer sentiment over the holiday period could bolster confidence for further market extensions despite Thursday’s decline.
However, traders are likely to reevaluate their strategies after the retreat, especially those who joined the rally due to FOMO (Fear Of Missing Out). The sustainability of these gains hinges on whether Beijing announces detailed fiscal policies following the holidays.
