Hong Kong Stocks Under Pressure After Beijing Tightens Capital Controls

Hong Kong Stocks Face Pressure After Beijing Tightens Capital Controls

Hong Kong stocks are expected to come under selling pressure on Tuesday as investors react to Beijing's crackdown on illegal cross-border stock trading, which is estimated to impact about $30 billion of investment in the city.

Market Reopens After Holiday

The Hong Kong market resumes trading following a public holiday, and risk appetite is likely to be curbed after China on Friday punished online brokers Tiger, Futu, and Longbridge for moving Chinese money offshore without a license.

The industry-wide clampdown, which also requires a wind-down of illegitimate trading accounts within two years, could affect as much as HK$420 billion ($53.61 billion) worth of assets, including HK$294 billion in Hong Kong, according to Kaiyuan Securities estimates.

Short-Term Impact, Limited Long-Term Effect

'This could roil market mood in the short term, but the long-term impact on liquidity is limited,' the brokerage said in a report ahead of the market open.

The negative impact was already seen in the U.S., where the Nasdaq Golden Dragon China Index declined 2% on Friday following China's announcement. U.S.-listed KraneShares CSI China Internet ETF slumped 3%, and Tiger parent UP Fintech tumbled 25%.

As trading resumes in Hong Kong, the Hang Seng Tech Index, a favorite target for mainland investors, could suffer. Hong Kong small-caps may also be vulnerable to an expected liquidity drop, with small Hong Kong brokers such as Bright Smart potentially becoming targets of selling.