Beyond the pressure from geopolitical risks, factors such as a wave of share unlocks exceeding HKD 80 billion in March and a dense window for annual report disclosures represent deeper sources of persistent pressure on the Hong Kong stock market.
An escalation in geopolitical conflict, yet the stock market rises instead of falls, leaving short-seller Ting Hai and his family bankrupt. This is a classic scene from the years-old Hong Kong TV drama "The Greed of Man." However, as similar conflict flares up again in the Middle East, the Hong Kong market has not staged a dramatic rebound.
The Hang Seng Index and technology stocks have been under pressure for several consecutive days, with heavyweight stocks like Meituan and Xiaomi Group continuing to trend lower. In contrast, geopolitical risks ignited the oil and gas sector. China Hong Oil surged nearly 90% in early trading before paring gains.
Apart from geopolitical pressures, the market is facing a significant wave of share unlocks in March, exceeding HKD 80 billion, alongside a crowded period for annual report releases. These are considered more fundamental reasons for the ongoing pressure on Hong Kong stocks.
Facing the Unlock Wave On March 2, influenced by the escalation of US-Iran geopolitical tensions, the three major Hong Kong indices collectively fell on the first trading day after the holiday. The downward trend continued on March 3. At the time of writing, the Hang Seng Index was down 0.52%, while the Hang Seng Tech Index fell 1.13%.
Market-wide, the geopolitical situation boosted the oil and gas sector. Shandong Molong gained 55%, rising for a third straight day. China Hong Oil saw its increase reach 89% at one point. United Energy Group advanced 16.25%. The three major Chinese state-owned oil companies showed relatively stable performance: CNOOC rose 1.12%, PetroChina climbed 1.51%, while Sinopec declined 2.5%.
In contrast to the strong performance of resource and safe-haven sectors, technology stocks remained under pressure. Heavyweights such as Meituan-W, Xiaomi Group-W, and Baidu Group-SW continued their downward trend.
In the short term, while the US-Iran conflict is a key trigger for market attention, more endogenous factors are at play behind the Hong Kong market's sustained adjustment. Taking a longer view, the Hang Seng Tech Index had already accumulated a decline of over 15% in February.
On one hand, the market is approaching a peak in share unlocks in March, increasing short-term supply pressure. Historical patterns show that unlock waves have frequently coincided with market downturns in Hong Kong, such as in mid-2011, the second half of 2015, March 2019, the second quarter of 2021, and mid-2022. According to a GF Securities research report, sectors including non-ferrous metals, tea beverages, automobiles, and pharmaceuticals will face large-scale unlocks in March 2026. The total unlock scale for mid-to-large cap companies with market capitalizations above HKD 30 billion is estimated at HKD 87.2 billion.
On the other hand, with the annual report disclosure window approaching, profit expectations have become a market focus. Under Hong Kong listing rules, companies whose fiscal years align with the calendar year must disclose preliminary annual results by March 31. The peak disclosure period for Hang Seng Tech Index constituents is concentrated in mid-to-late March. Factors such as intense competition in food delivery subsidies and large language model development have heightened market concerns about the profitability of leading internet companies. Meituan issued a profit warning in February, forecasting a net loss between RMB 23.3 billion and RMB 24.3 billion for 2025, primarily due to increased subsidies and investments to counter industry competition. A fund industry insider in Southern China noted that compared to these two internal factors, the impact of geopolitical conflict on the market has gradually weakened and is not the dominant factor in the current adjustment.
Notably, despite increased market volatility, southbound capital flows have turned net positive. Wind data showed net southbound selling of HKD 7.366 billion on February 26, following net selling of HKD 3.56 billion the previous trading day, indicating outflows after the holiday. However, on March 2, southbound capital saw significant net inflows of approximately HKD 16.214 billion against the market trend. This included net inflows of about HKD 8.108 billion via the Shanghai-Hong Kong Stock Connect and HKD 8.106 billion via the Shenzhen-Hong Kong Stock Connect.
Will Capital Flow to Safe Havens? Following the escalation of US-Iran tensions, market attention has turned to whether capital flows will shift and if Hong Kong stocks can serve as a safe haven. Hong Kong's Financial Secretary, Paul Chan, stated in a recent television appearance that the conflict creates significant uncertainty for the global economy and is expected to intensify financial market volatility, leading to more frequent and unstable capital flows. He also suggested that some capital might shift from the Middle East to seek refuge in Hong Kong, adding that authorities are fully prepared to handle related financial risks prudently and have contingency plans for market fluctuations.
Several institutions believe that external conflicts primarily affect the Hong Kong market through short-term sentiment, with limited impact on long-term trends.
Firstly, historical patterns suggest that the impact of localized conflicts on equity assets is typically short-lived. The strategy team at Guosen Securities analyzed 12 typical international localized conflicts since 2000. They found that equities generally face initial pressure, with the US dollar and commodities performing relatively better. However, within one week to one month after the conflict outbreak, equities often experience a rebound, while previously strong safe-haven assets gradually retreat.
This pattern is also observed in the A-share and H-share markets. Tianfeng Securities cited the Israel-Iran conflict in June 2025 as an example. After the conflict erupted and a ceasefire was reached over ten days later, both A-shares and H-shares, which had accumulated some gains by early June 2025, experienced declines during the conflict period before bottoming out as the conflict neared its end. During that period, the Hang Seng Index peaked on June 11, while the Shanghai Composite Index peaked on June 12. The Hang Seng Index also bottomed earlier, on June 19, compared to the A-share market's low on June 23. The maximum drawdowns were 5.13% for the Hang Seng Index and 1.93% for the Shanghai Composite Index. Notably, from late June onwards, both markets embarked on a significant upward trend.
Tianfeng Securities strategist Wu Kaida further pointed out that the impact of geopolitical conflict on equity markets exhibits distinct layers. Based on historical cases like the Gulf War and the Iraq War, short-term market drawdowns and recoveries often follow a two-way fluctuation trajectory aligned with conflict developments. When conflicts do not touch core US interests or involve limited US engagement, the impact on global equity long-term trends is relatively contained. Markets tend to revert to being driven by earnings and liquidity logic after risk premiums are priced in. However, when the US is deeply involved, impacting core energy or financial system components, short-term volatility amplifies significantly, and cross-market transmission becomes faster, highlighting the Hong Kong market's tendency to follow US market movements.
Based on current market reactions, capital is indeed shifting towards safe-haven assets within the Hong Kong market.
Soochow Securities analyst Chen Meng noted that Hong Kong market capital is generally sensitive to geopolitics. With the trajectory of the US-Iran conflict still unclear, markets are concerned about the future path of oil prices and inflation, and the potential for further reduction in the US Federal Reserve's interest rate cut flexibility. Regarding the conflict's progression, as the US likely seeks to avoid prolonged entanglement, the impact is expected to be more short-term, influencing market trading styles. There is relative consensus for favoring safe-haven assets in the near term, with focus on sectors like oil and gas, non-ferrous metals, and defense.
However, while monitoring these short-term trends, it is also crucial to be wary of the high volatility risks associated with geopolitical conflicts. Liu Yu, chief fixed income analyst at Huaxi Securities, indicated that under a baseline scenario, if turmoil is contained within Iran and leads to concessions and renewed negotiations, with the Strait of Hormuz reopening, the geopolitical premium previously factored into oil prices would quickly erode. Combined with OPEC+ production increase plans, oil prices would face significant correction risks. In an extreme scenario, if hardliners in Iran lead to a protracted conflict and the Strait faces long-term blockade, rapidly depleting global crude inventories could trigger a historical price surge. Current long-short positioning is highly influenced by geopolitical uncertainty, suggesting that crude oil and precious metals may experience wide price fluctuations.
