China/Hong Kong Market Pulse: Two Sessions Spark Divergent Market Reactions in Mainland and Hong Kong China/Hong Kong Market Pulse: Two Sessions Spark Divergent Market Reactions in Mainland and Hong Kong China/Hong Kong Market Pulse: Two Sessions Spark Divergent Market Reactions in Mainland and Hong Kong

China/Hong Kong Market Pulse: Two Sessions Spark Divergent Market Reactions in Mainland and Hong Kong

Macro 5 minutes to read
Redmond Wong

Chief China Strategist

Summary:  Following the unveiling of the 2024 government work report, the Hong Kong stock market experienced a significant sell-off, driven by the absence of positive policy surprises. In contrast, mainland A-share benchmark indices displayed resilience, concealing broader market weakness. The likely intervention of the National Team became evident, focusing on supporting large-cap benchmarks. Additionally, President Xi Jinping's emphasis on high-quality development and technological innovation underscores China's commitment to industrial policies. Investors eagerly await insights into these policies during a key press conference featuring top officials.

Key Points:

  • Hong Kong stocks faced a significant sell-off, contrasting with mainland A-share indices after the government work report
  • The National Team likely intervened to support large-cap benchmarks, veiling weaknesses in broader A-share markets
  • President Xi Jinping underscored the importance of high-quality development and technological innovation
  • Investors await insights into China's industrial policies during an upcoming press conference featuring top officials.


The mainland A-share market and the Hong Kong stock market experienced a significant divergence in performance on a pivotal Tuesday, marked by the unveiling of China's 2024 government work report during the National People's Congress (NPC). While the A-share market maintained relative stability, the Hong Kong equity market faced a sharp decline, leaving investors puzzled about the contrasting trajectories. This article delves into the key factors contributing to this divergence and examines the implications for both markets.

Economic Targets Unveiled in the Government Work Report

In his Government Work Report delivered at the NPC, Premier Li Qiang unveiled China's economic targets for the year, as outlined in the government work report. The goals included a real GDP growth target of around 5.0%, a CPI inflation target of approximately 3.0%, and an on-budget deficit-to-GDP ratio target of 3.0%. These targets align with the previous year's objectives, indicating a degree of continuity in the current, relatively cautious macroeconomic policy. When factoring in the RMB1.0 trillion central government special bonds and RMB3.9 trillion of local government special bonds, the actual deficit ratio would substantially increase to around 7.0% of nominal GDP in 2024. The Central Government will issue ultra-long special bonds for the next few years.

Stocks in Hong Kong Face Selling Pressure Amid Absence of Positive Policy Surprises

While the economic targets for 2024 are generally in line with expectations, the absence of positive surprises prompted investors to sell stocks traded on the Hong Kong bourse. Additionally, the continued silence of the Communist Party of China regarding the Third Plenary Session, a meeting typically focused on discussing and making long-term development decisions, keeps investors cautious and inclined to trim long positions after the decent run-up from the trough in late January this year.

On Tuesday, following the Government Work Report, the Hong Kong equity market underwent a significant sell-off, with both the Hang Seng Index and Hang Seng China Enterprises Index dropping by 2.6%. The Hang Seng TECH Index plummeted by 4.3%, with all 30 constituent stocks finishing lower. Digital health services providers, e-commerce, AI, and new energy vehicle stocks were among the biggest losers

Resilience in Mainland A-Share Benchmark Indices Veiled Weakness in the Broader Market

In contrast to the Hong Kong market, the mainland A-share benchmark indices displayed a more resilient performance following the delivery of the Government Work Report on Tuesday. The Shanghai Composite Index saw a modest gain of 0.3%, reaching 3,048, while the CSI 300 added 0.7%, reaching 3,566 and marking its fourth consecutive day of increases. Shanghai Stock Exchange 50 Index (SSE50) advanced 1.2%.

However, the A-share market experienced a puzzling scenario. Despite the major indices edging up modestly, individual stocks faced broad-based declines, with more than 4,300 stocks sliding, and only less than 1000 advancing out of the 5,300-plus A-share stocks. The CSI Small Cap 500 slid 0.7% and the CSI 1000, which is composed of stocks with market cap below even those in the CSI Small Cap 500, declined by 1%.

Another notable phenomenon on Tuesday was the doubling of trading volume in several of the largest CSI300 ETFs from the previous day, with the trading value reaching RMB 27 billion. SSE50 ETFs also experienced significant buying. On individual stocks, state-owned banks, central state-owned enterprises, and industrial policy favorites such as AI stocks and new energy vehicle stocks witnessed substantial buying as well. This pattern typically indicates the involvement of the National Team, a group of investment funds and proprietary trading desks of securities firms controlled by the state, known to intervene in the equity market under government instructions to stabilize prices.

The divergence in performance between the A-share benchmark indices and the broader universe of individual stocks suggests the likely intervention of the National Team on Tuesday. The aim appeared to be preventing weakness in the market benchmark indices on the day of the Government Work Report's delivery and the first day of the NPC. The state-backed intervention focused on boosting leading market benchmark indices, leaving stocks that are not included or carry less weight in these benchmarks to decline in the background without the support of state-backed buying.

The Two Sessions outcomes met general expectations, providing no significant positive surprises. The absence of new policy directions or economic stimulus measures led to a sell-off in stocks traded in Hong Kong and A-share stocks which are not constituent stocks of key market benchmark indices or leading state-owned enterprises. The presence of the National Team, or government-backed funds, became evident as they intervened to stabilize the A-share market and support the large cap benchmarks such as the SSE50 and CSI300 while leaving the bulk of the medium and small cap A-share stocks as well as those trade in the Hong Kong bourse on their own and experience declines. 

Emphasis on industrial policies for high-quality development

On Tuesday, President Xi Jinping highlighted the critical importance of embracing high-quality development during his meeting with delegates from Jiangsu province at the NPC. He emphasized the necessity of developing new productive forces that are adaptive to local conditions, focusing on technological innovation and industrial transformation. His comments underscore China's dedication to industrial policies that drive technological advancement and innovation.

Today, at 3 pm, investors will closely scrutinize the latest directions and plans of China’s industrial policies during the press conference. The event will feature speakers such as the Director of the National Development and Reform Commission, the Minister of Finance, the Minister of Commerce, the Governor of the People's Bank of China, and the Chairman of the China Securities Regulatory Commission (CSRC). These officials will address questions from reporters, providing insights into China's current industrial strategies and plans as well as the reform of China’s financial system and capital markets. Investors will pay close attention to the new CSRC Chief, Wu Qing’s assessment of the regulatory environment of the Chinese equity market.


In conclusion, the Government Work Report and the outcome of the first day of the NPC meeting aligned with general expectations, offering no significant positive surprises. The absence of new policy directions or economic stimulus measures triggered a sell-off in both Hong Kong and A-share stocks that are not part of key market benchmarks or leading state-owned enterprises. Notably, the National Team intervened to stabilize the A-share market, supporting large-cap benchmarks like SSE50 and CSI300. However, medium and small-cap A-share stocks, along with those traded on the Hong Kong bourse, experienced declines without state-backed support.

The emphasis on high-quality development, as highlighted by President Xi Jinping, underscores China's commitment to industrial policies fostering technological advancement and innovation. Investors eagerly await insights into these policies during the upcoming press conference, where key officials will address questions and provide details on China's industrial strategies, plans, and financial system reforms. Of particular interest is the assessment of the regulatory environment of China’s equity market by the new CSRC Chief, Wu Qing, adding a layer of significance to the unfolding events in China's economic landscape.

While National Team buying may continue to support key A-share benchmarks and their top constituent stocks throughout the remainder of the Two Sessions, the overall A-share market and the Hong Kong market appear poised for retracement to the downside. Investors remain cautious due to the lack of reform and clear strategies to restore the trend growth of the Chinese economy, coupled with the Party’s silence about the critical Third Plenary Session. Selling may intensify after the Two Sessions to test the resolve of the Chinese authorities to support the market.


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