2024 Q4 US Nasdaq Index plunged 3.6%, while the Hang Seng Tech Index fell 4.2% simultaneously, highlighting that the linkage between the two markets has deepened to the level of capital flows. Facing the Federal Reserve’s policy swings, the tech industry’s cyclical shifts, and rising geopolitical risks, Hong Kong stocks serve a dual role as a “buffer valve” against US bond shocks and an “α source” to capture structural opportunities. As of early 2025, southbound capital allocations to Hong Kong tech stocks and REITs surpassed 37%. Institutions are responding to normalized volatility with a “barbell strategy”—one end positioned on AI computing infrastructure, the other locked in high-dividend defensive REITs. This strategic migration is reshaping the risk-pricing logic of offshore markets.
Recent sharp volatility in the US stock market has become a weather vane for global capital markets. Since Q4 2024, the Federal Reserve’s monetary policy shift, earnings divergence among tech giants, and escalating geopolitical risks have constituted the three main drivers of market volatility. These factors are not only reshaping valuation logic in the US stock market but also exerting a “stress test” on Hong Kong stocks through cross-border capital flows and sentiment transmission. This section will analyze the underlying mechanisms of US market volatility and explore its spillover effects on the Hong Kong market.
In December 2024, the Federal Reserve unexpectedly lowered its rate-cut forecast, reducing the anticipated annual rate cuts from 75 basis points to 50 basis points, causing a short-term surge in US Treasury yields. The 10-year Treasury yield briefly touched 4.8%, triggering a valuation correction in tech stocks. This move reflects the Federal Reserve’s concerns over “stagflation risks”—although breakthroughs in AI technology are driving productivity growth, the Trump administration’s expansionary fiscal policies (such as allocating hundreds of billions of dollars for disaster relief) and potential tariff measures (targeting China, Mexico,Canada and other countries) may exacerbate inflation stickiness. This policy uncertainty has forced investors to reprice risk assets, with the Nasdaq Index falling 3.6% in July 2024 alone, marking the largest monthly pullback since 2022.
The earnings performance of tech giants has become a volatility amplifier for the market. For example, Tesla’s net profit fell 45% in Q2 2024, dragging the S&P 500 Index down 2.3% in a single day; in contrast, Microsoft and Amazon exceeded expectations in cloud business growth, supporting a countertrend rise in the communication services sector. This divergence highlights the “new and old momentum shift” within the tech industry: traditional hardware manufacturers are facing inventory destocking pressure, while AI computing power and data center operators are benefiting from the capital expenditure cycle. The sector rotation effect has further spread to Hong Kong stocks, with Hang Seng Tech Index constituents such as Alibaba-W, Xiaomi Corporation and others showing significantly higher volatility synchronization due to their business structures being closely tied to US tech leaders.
The Trump administration’s threat of “100% punitive tariffs” and political turmoil in France have intensified the global contraction of risk appetite. In December 2024, Chinese concept stocks fell for two consecutive months by 3.5%, reflecting investors’ pricing of China-US decoupling risks. Such events are pre-reflected through the “Hang Seng Index futures,” for instance, when the S&P 500 Index closes down 1%, Hang Seng Index futures often follow with a 0.8%-1.2% decline. This sentiment transmission mechanism positions Hong Kong stocks as both a “buffer cushion” and a “pressure release valve” for global political risks.
As an offshore market, the pricing logic of Hong Kong stocks has long been dominated by US dollar liquidity and risk sentiment. According to research by GF Securities, since 1991, the correlation coefficient between Hong Kong and US stocks has reached 0.769, and during rate hike cycles, the volatility of Hong Kong stocks is usually 1.2-1.5 times higher than that of US stocks. This section deconstructs the linkage paths between the two markets from a quantitative perspective, providing an empirical basis for subsequent hedging strategies.
The Federal Reserve’s policy influences Hong Kong stocks through three channels:
The tech and REITs sectors show differentiated linkage patterns:
Hong Kong’s night futures contracts and US after-hours trading form a “closed-loop of expectations.” For example, in January 2025, when the US tech sector rose 2% in after-hours trading, the Hang Seng Tech Index had a 78% probability of opening higher the next day. This mechanism positions Hong Kong stocks as an “Asian time-zone risk-hedging tool” for global investors.
The Hong Kong tech sector showed strong resilience in early 2025, with the Hang Seng Tech Index rising 26%, ranking first among major global indices. Behind this phenomenon is not only support from improved industry fundamentals but also a revaluation of long-term growth logic by capital.
Breakthroughs in generative AI technology are driving divergence among Hong Kong tech stocks:
The China Securities Regulatory Commission included REITs in Stock Connect, allowing tech infrastructure operators to directly raise low-cost funds. For example, the “Hang Seng Tech 30 ETF” (513160) saw its single-day turnover surge 10 times after the policy announcement, indicating accelerated institutional allocation to AI computing power assets. In addition, companies such as Xiaomi Corporation (01810.HK) increased buybacks (totaling HKD 12 billion in 2024), effectively offsetting the pressure of foreign capital outflows.
The Hong Kong REITs market ushered in a structural turning point in 2025. Despite an average price-to-book ratio of only 0.36x, an 8.04% dividend yield and a 34.6% debt ratio make it a “ballast” in volatile market conditions.
According to US market experience, REITs deliver an annualized return of 12.5% when CPI annual growth is in the 3%-5% range, significantly outperforming the S&P 500 Index’s 7.8%. Hong Kong’s Link REIT (00823.HK) recorded a 5.3% CAGR in dividend growth over the past five years, forming a safety cushion against Hong Kong’s inflation rate (2.8%).
After being included in Stock Connect, the average daily turnover rate of REITs rose from 18.9% to 25.7%, with southbound capital holdings exceeding 5%. At the same time, the policy exempted stamp duty (previously 0.1%), reducing transaction costs by 30% and attracting increased allocations from insurance funds and pension funds.
Investors can allocate in layers according to risk preferences:
In Q4 2024, active funds raised their allocation ratio to Hong Kong stocks to 14.3%, hitting a historical high. Capital flows reveal two major trends:
Institutions such as BlackRock adopt a “70% tech stocks + 30% REITs” portfolio, balancing growth and income. This strategy achieved an annualized volatility of 12.5% in H2 2024, lower than the 22.3% of pure tech portfolios.
Southbound capital recorded 12 consecutive months of net inflows, totaling HKD 281.8 billion, with holdings in individual stocks such as Xiaomi and SMIC surpassing 10%, partially offsetting the selling pressure from foreign capital.
Facing the normalization of high volatility in US stocks, Hong Kong stock investors need to pay more attention to the “asymmetry of risk-reward ratios.” The AI transformation of tech stocks and the liquidity dividend of REITs form the two pillars of the current market. A dynamic rebalancing strategy is recommended: when the VIX Index breaks above 30, increase the REITs allocation ratio to 40%; once market sentiment recovers, shift the focus back to the elasticity of tech stocks. This framework not only captures the dividends of industrial upgrading but also smooths portfolio volatility through high-dividend assets, gaining a first-mover advantage in global capital rebalancing.
Key mechanisms: US dollar liquidity (US Treasury yield changes drive cross-border capital flows) + industry correlation (Hong Kong tech stocks’ business structures highly overlap with Nasdaq constituents) + sentiment transmission (Hong Kong night futures and US after-hours trading form a closed-loop of expectations). Empirical evidence shows that when the S&P 500 Volatility Index (VIX) rises by 10 points, the Hang Seng Index’s average opening volatility the next day expands by 1.8 times.
Core logic: Valuation safety margin (Hong Kong tech stocks’ 2025 forecast median PE 18x vs US 35x) + southbound capital support (cumulative net purchases of HKD 120 billion in tech stocks in 2024) + business model differences (Hong Kong focuses on AI computing infrastructure and other To B fields, less affected by consumer cycles).
Data support: Taking Link REIT (00823.HK) as an example, with a debt ratio maintained at 32% and a dividend yield of 7.4%, when Hong Kong’s overall market volatility rises by 1 unit, the volatility of the REITs sector only increases by 0.3 units, showing significantly low correlation (β value 0.47).
Operational framework:
Scenario analysis:
