Hang Seng Index Falls Over 3% in a Single Day, Analysts Say Correction Is Not Over, but Excessive Pessimism Should Be Avoided

Why do geopolitical risks drive energy stocks but drag down the gold sector?

Southern Finance, 21st Century Business Herald Reporter Yuan Sijie, Hong Kong Report

On March 23, due to escalating Middle Eastern geopolitical tensions and weakness in external markets, Hong Kong stocks experienced a sharp correction.

By the close, the Hang Seng Index fell below 24,500 points, with all three major indices dropping over 3.5%. The technology, gold, and non-ferrous metals sectors were the hardest hit. Despite widespread market panic, southbound funds bought aggressively against the trend, with a net daily purchase of over HKD 14.6 billion, showing long-term confidence from mainland investors in Hong Kong stocks.

By the afternoon close, the Hang Seng Index was at 24,382.47 points, down 894.85 points or 3.54%; the Hang Seng Tech Index closed at 4,712.48, down 3.28%; the State-owned Enterprises Index also declined by over 3%.

On the market, tech stocks were heavily sold off, with Bilibili-W and SenseTime-W both dropping over 6%, Baidu Group-SW down over 5%, JD.com Group-SW, Alibaba-W, Xiaomi Group-W, and Meituan-W all falling more than 3%, and Tencent Holdings also under pressure, down nearly 2%.

Additionally, Hong Kong’s AI “new forces” like MiniMax-W and Zhipu fell 9.17% and 6.42%, respectively.

Other sectors showed significant divergence. Driven by rising risk aversion amid escalating geopolitical tensions, some energy stocks defied the trend and rose. China National Offshore Oil Corporation (CNOOC) gained 0.45%, Shandong Molu Oil gained over 4%, and Baqian Oilfield surged 35.71%.

However, gold and non-ferrous metals sectors saw massive fund outflows, diverging from traditional safe-haven logic, mainly due to profit-taking after previous gains and disruptions from the US dollar’s movements. By close, Chifeng Gold fell 25.10%, Lingbao Gold dropped 12.39%, and Zhufeng Gold declined 11.54%. Additionally, China Hongqiao fell over 8%, Zijin Mining, though resilient, still declined 4.9%, as metal prices are highly sensitive to macro interest rate changes and demand expectations, leading to significant capital outflows.

Notably, international oil prices soared due to geopolitical conflicts, benefiting traditional oil and gas stocks directly and indirectly boosting the “oil-to-electricity” substitution logic and cost advantages in the new energy vehicle sector. On the market, Leapmotor rose 2.69% against the trend, closing in the green, becoming one of the few tech growth stocks to do so; Geely Auto also performed well, up 2.46%, reflecting investor preference for quality automakers capable of replacing traditional fuel vehicles amid high oil prices.

In response to the market’s irrational decline, several institutional analysts issued their outlooks.

Yeping Pei, a fund manager at China Europe Fund, told reporters, “Supply disruptions” and “demand destruction risks” coexist, with ongoing conflict escalation risks. Rising energy prices could slow global GDP growth, affecting demand for crude oil and industrial metals. Currently, the market is pricing in demand risks rather than supply disruptions.

In today’s real-time commentary, China Europe Fund pointed out that rising global inflation and escalating geopolitical tensions will further drive cyclical commodities. As volatility increases, the value of low-volatility assets is gradually rising, with three areas to watch: first, traditional low-volatility dividends; second, coal chemical sectors with profit margins expected to improve beyond expectations; third, oil and gas sectors benefiting from long-term upward shifts in product price centers.

Yang Delong, Chief Economist at Qianhai Kaiyuan Fund, told reporters that today’s deep correction in Hong Kong stocks is similar to the trend in Asia-Pacific markets globally. The obvious reason is that investors’ concerns over geopolitical uncertainties have amplified panic, leading to panic selling.

Yang believes that those selling now were previously confident in the market’s prospects, but due to the sharp short-term decline, they are reducing positions for risk aversion. The market’s adjustment process is not yet over.

Wen Tianna, CEO of Boda Capital International, analyzed that this accelerated decline is characteristic of “emotional oversell + external shocks,” rather than a fundamental collapse. Similar to the performance after multiple geopolitical shocks in 2022-2023, Hong Kong stocks often experience V-shaped or W-shaped recoveries after panic lows.

Despite short-term market sentiment being subdued, the decisive inflow of southbound funds today is seen as a positive signal. The total transaction volume was HKD 16.7638 billion, with net purchases of HKD 2.9728 billion, indicating that mainland investors remain optimistic about Hong Kong stocks’ recovery after extreme volatility.

“We believe that Hong Kong stocks should not be overly pessimistic. The resilience of Hong Kong’s dividends and core Chinese assets is expected to continue. The previously adjusted Hang Seng Tech Index still offers high odds, and after the US-Iran conflict potentially escalates, TACO trading could re-emerge,” said Liao Bo, Chief Macro Analyst at Northeast Securities Research Institute.