HSI jumps 2% to 25,807 as Korea crash drives short covering

The Hang Seng Index jumped 497 points, or 2 percent, to 25,807, its highest close since early May, as a brutal selloff in South Korea's KOSPI triggered a rapid unwind of a cross-market pair trade.

"The KOSPI's 10.8 percent collapse is forcing a violent reversal of the Korea-long, Hong Kong-short trade that dominated Asia this year," said Hao Hong, chief strategist at Bocom International. "Alibaba and Tencent shorts are being covered aggressively."

The Hang Seng Tech Index climbed 2.8 percent to 4,864, with Xiaomi Corp. surging 9 percent to HK$31.88 and Tencent Holdings (0700.HK) adding 4.3 percent to HK$466.4. Li Auto Inc. led the rally among constituents, jumping 9.9 percent to HK$54.6. Five blue-chip stocks hit record highs: HSBC Holdings (00005.HK) rose 1.7 percent to HK$164.7, China Construction Bank (00939.HK) added 0.9 percent to HK$9.21, Midea Group (00300.HK) gained 2.1 percent to HK$98.4, ICBC (01398.HK) rose 1.6 percent to HK$7.48, and Mengniu Dairy (02319.HK) climbed 3.4 percent to HK$19.32. Turnover reached HK$312.2 billion, well above the 20-day average.

The divergence between Hong Kong and Seoul underscores a rapid deleveraging in Asia's AI-chip trade. South Korea's KOSPI plunged 10.8 percent — its worst session since October 2008 — as forced margin selling and a sudden unwind of leveraged AI positions triggered a cascade. The KOSPI has now lost 22 percent over four sessions, while the Hang Seng Tech Index has gained 5.8 percent in the same period, according to Bloomberg correlation data.

Korea-Hong Kong Divergence Deepens as Pair Trade Unwinds

The rally was broad-based, with consumer and auto stocks leading. Li Ning Co. rose 4.5 percent, China Resources Beer gained 3.5 percent, and ANTA Sports Products added 3.4 percent. Geely Automobile Holdings climbed 6.2 percent and BYD Co. rose 4.2 percent.

The Shanghai Composite Index, by contrast, fell 1.2 percent to 3,813, as mainland markets tracked the broader regional weakness. The divergence between Hong Kong and onshore China reflects the specific nature of the unwind trade, which targeted Hong Kong-listed tech names that had been heavily shorted earlier this year.

In Seoul, the KOSPI triggered its eighth circuit breaker of the year. Samsung Electronics posted its worst single-day drop in almost two decades, falling more than 14 percent, as circular-financing worries collided with fresh evidence of Chinese progress in chipmaking equipment. Taiwan's TWSE fell 4.7 percent and Japan's Nikkei 225 dropped 4 percent.

In the U.S. overnight, the Dow Jones Industrial Average rose 1 percent to a fresh record of 52,748, while the Nasdaq Composite slipped 0.2 percent as technology stocks continued to struggle. The rotation out of growth and into value continued, with healthcare, consumer staples, and materials sectors leading on Wall Street.

All eyes now turn to the Federal Reserve's policy decision Wednesday and Thursday's U.S. jobless claims data, which could determine whether the rotation out of technology deepens or stabilizes.

This article is for informational purposes only and does not constitute investment advice.