Hong Kong and mainland Chinese shares may continue to see sell-off risks this week as weak economic data due on Wednesday could become a new trigger for a correction in the market and capital continues to flow out of the country in the near future. The National Bureau of Statistics is set to announce a basket of economic data on Wednesday, including monthly reports on housing sales, fixed-asset investment and consumption. The key Shanghai Composite Index ended the week 2.2 per cent higher at 3,744.21 points, while Hong Kong’s benchmark Hang Seng Index edged down 0.34 per cent to 24,552.47 points, posting a loss for a third week. Capital outflows from Hong Kong and mainland Chinese equities are seen to continue, with global asset managers increasing their short-selling ratio in some key indices and relocating some of their portfolio to developed markets amid the rising likelihood of a rate rise in the United States. US jobs rose solidly in July by 215,000 while unemployment held at a seven-year low of 5.3 per cent, bolstering the view that the Federal Reserve will raise rates as early as next month. “Although Chinese markets had a summer sell-off, I still don’t think direct investments in high-quality Chinese companies are cheaper than what we can get through international companies that have big business in China,” said William Nygren, a portfolio manager with Harris Associates. “Additionally, we like the legal protection and corporate governance protection you have when investing in developed markets.” Hong Kong equities have seen two consecutive weeks of capital outflows while mainland Chinese equities have seen four, according to Jefferies global fund tracker data released on Friday. Foreign asset managers have pulled a combined US$372 million from the Hong Kong market between July 22 and August 5, while they pulled as much as US$11.3 billion from mainland Chinese shares between July 8 and August 5, the report showed. Some key factors that have cast a shadow over the A-share market will continue to overhang it. The leverage on A shares, including margin financing and non-margin financing channels such as outstanding umbrella trusts, informal financing, stock repos and equity return swaps, fell from its peak level in June, according to Credit Suisse. But the total is still high. “Despite a significant drop from its peak, the A-share market leverage is still high compared with that of other major markets,” said Credit Suisse analysts led by Shen Hu. “This excludes other informal channels whose total scale competes with margin financing, the balance of the latter accounting for about 2.6 per cent of the total market capitalisation.” Some market watchers are worried about the long-term impact on the mainland Chinese market and the implications for the country’s economic reform programme. “The greater risk lies in the danger of letting the market mayhem become a distraction from the critical problems facing China’s economy, namely, the large and growing debt burden,” said Alex Wolf, an emerging-markets economist at Standard Life Investments. “Staking credibility on their ability to overcome market forces risks damaging its authority in the eyes of both those optimistic enough to believe the government can actually defeat the market and those who know better but can’t believe the government is short-sighted enough to try.”