Introduction

The global financial market has recently been experiencing one wave of turmoil after another, with the Hong Kong stock market in particular facing significant pressure from various uncertainties. Everyone is closely watching whether the trading during the National Day holiday will trigger even greater fluctuations. Is it market sentiment, capital flows, or policy factors at play? This article will provide an in-depth analysis of these complex factors, giving you more confidence in making investment decisions.

Financial Market Uncertainty

Recently, the uncertainties in the global financial market have been laid bare. The ongoing U.S. debt ceiling crisis, political turmoil in Italy, continuous setbacks in Brexit negotiations, and a severe global trade environment are just a few of the geopolitical and macroeconomic risks that have intertwined and overlapped, casting a shadow over investor confidence.

These uncertainties have had a certain negative impact on the Hong Kong stock market. With the sharp decline in the U.S. stock market, the Hong Kong market has also been unable to escape its fate, experiencing wave after wave of declines.

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On October 4th, the U.S. released September non-farm employment data that was unexpectedly positive, with both the unemployment rate and the number of new non-farm jobs exceeding expectations. This has suddenly narrowed the previously expected larger interest rate cut expectations, causing U.S. stocks to fluctuate and decline.

This has exacerbated the overseas liquidity expectations that have been disturbing the Hong Kong stock market. At this time, the Hong Kong market is at the end of the National Day Golden Week holiday, with the market set to open on October 8th.

The market has always had the concept of a "pre-holiday window period," where liquidity is scarce during the holiday period, leading to reduced market volatility. After the holiday, due to the influx of accumulated information and capital, there is often a significant fluctuation.

The intersection of pre-holiday information and post-holiday opening capital in this broader environment will bring more uncertainty to the Hong Kong stock market.

During the National Day period, the Hong Kong stock market has been eye-catching, with the Hang Seng Index rising by 9.30%, showing that investor confidence in the Hong Kong stock market still exists. However, in the face of such great uncertainty and pressure, can the market continue to maintain this confidence?Why the Plunge Occurred

The sharp decline in the Hong Kong stock market cannot be attributed to a single cause; instead, it is the result of a combination of various factors.

Currently, the plunge in the Hong Kong stock market can be interpreted from three aspects: market sentiment, liquidity, and policy.

At the market sentiment level, the global financial market is in a slump, with geopolitical risks and macroeconomic pressures intertwined and superimposed, leading to a generally pessimistic investor sentiment.

Market confidence is a barometer of stock market trends. Under the current circumstances where global stock markets are generally poor, the Hong Kong stock market has been significantly dragged down.

Furthermore, the impact of liquidity is another factor. In the current environment, funds have also become one of the key factors affecting the stock market trend.

The consensus on the marginal tightening of liquidity within the Eastern powerhouse has already been established. Against this backdrop, the flow of funds between A-shares and Hong Kong stocks will be greatly affected.

Additionally, after the recent continuous rise, some institutions and individual investors want to choose to consolidate or take profits and cash out, which also adds a certain degree of selling pressure to the Hong Kong stock market.

Lastly, there are policy factors. As one of the gateways to the Eastern powerhouse and a globally important financial center, the Eastern powerhouse has a significant influence on the Hong Kong market.

In recent years, the interconnectivity between the mainland and Hong Kong financial markets has gradually improved. Under this background, the mainland is particularly sensitive to the performance of the Hong Kong stock market.As the A-share market is closed during the National Day holiday while the Hong Kong stock market continues to trade normally, investors are generally concerned about potential changes in the A/H premium ratio. Especially after a noticeable inversion of the A/H premium occurred at the beginning of this year, some investors are worried that the process of the A/H premium ratio returning to normal could have a certain negative impact on the Hong Kong stocks.

The liquidity impact caused by the closure of the A-share market during the National Day holiday is not to be ignored. Under such circumstances, the flow of funds after the holiday is bound to trigger a new round of market fluctuations.

Holiday Impact

Although the National Day Golden Week lasts only seven days, it contains huge business opportunities and potential crises. During the festival, due to the large number of tourists and the suspension of work and holidays for most enterprises and institutions, it is often the time when sales and profits are the highest in the traditional commercial field.

In the financial market field, there may be situations such as pre-holiday window periods and post-holiday opening fluctuations. However, this year's National Day holiday, in addition to the aforementioned factors, has an additional point worth paying attention to, that is, the closure of the A-share market and the normal trading of Hong Kong stocks lead to a significant narrowing of the A/H premium ratio.

The A/H premium ratio refers to the ratio of the prices of the same company listed on the A-share and H-share markets. Generally speaking, the price of the same company's H-shares is lower than that of A-shares. If the increase in H-share prices is much greater than that of A-shares, it indicates that H-shares are overvalued, which is the hidden problem behind the significant narrowing of the A/H premium ratio.Since June of this year, the A/H premium ratio has been on an upward trend, reaching its peak at the end of September and the beginning of October, with some companies even having H-share prices higher than A-share prices.

Following this continuous rise, the significant narrowing of the A/H premium has inevitably led some investors to speculate about "whale retail" selling and cashing out.

Especially after the clear A/H premium inversion at the beginning of this year, this significant narrowing of the A/H premium may be seen by investors as a "second regression" triggering a chain reaction.

In addition, some retail investors, seeing the rise in H-share prices, believe that this is a rare opportunity and want to bottom fish and speculate on H-shares to bring short-term benefits.

However, no matter what the cause of the significant narrowing of the A/H premium ratio, it cannot change its essence: H-shares are severely overvalued.

In this situation, the post-holiday capital flow will inevitably lead to a decline in H-share prices, and if a large number of retail investors choose to sell or cash out after the holiday, it will accelerate the decline in H-share prices.

But in the face of such a situation, there is no need to worry too much. A period has already passed during the National Day holiday, and emotions on all sides have gradually calmed down, and there will not be too much fluctuation when the market opens after the holiday.

Conclusion

In such an uncertain market environment, investor confidence is particularly precious. Whether Hong Kong stocks can maintain this confidence under great pressure is worth our continued attention.