Hong Kong stocks fall for fourth straight year

This summer, when Hong Kong’s stock market meltdown seemed to have no end in sight, the city’s chief financial officer, Paul Chan, took action by creating a task force to build confidence in a market that was being hit by global investors who were wary of China.

Hong Kong cut taxes on trade and Mr Chan toured Europe and the United States, promising measures to “enable investors to be optimistic about the outlook”. However, investors were anything but optimistic and the city’s Hang Seng Stock Exchange is among the worst performing stock markets in the world this year.

The Hang Seng Index closed Friday, its last trading day of 2023, down 14% from the start of the year. Mainland Chinese stocks have also posted losses this year, with the CSI 300, an index that tracks companies listed in Shanghai and Shenzhen, down 11 percent.

Hundreds of billions of dollars have been spent this year as money managers and pension funds have reduced their holdings in Hong Kong, which has long been a gateway for foreign investors to invest money in Mainland China. These capital outflows have been largely driven by the economic slowdown in China and increasing pressure on U.S. investors to sell their exposure to Chinese companies.

“Most of the companies in the Hang Seng Index are essentially companies that depend on economic growth in China,” said Chetan Seth, Asian equity strategist at Nomura, a Japanese bank. “The weakness of the Chinese economy has clearly weighed on the performance of Chinese stocks listed in Hong Kong,” Mr. Seth said.

The losses in Hong Kong and the mainland contrast sharply with what happened in the United States, where inflation eased and the job market was strong. The S&P 500 index, which broadly tracks U.S. stocks, is up 25% in 2023, highlighting the divergent trajectories of the world’s two largest economies.

Global investors began the year optimistic that China’s economy would rebound after three years of strict rules and pandemic-related lockdowns. But when China fully opened its borders in January for the first time since 2020, many households were reluctant to spend. Private businesses went bankrupt and the economy slowed.

The real estate crisis in China has intensified the economic crisis and spread to Hong Kong. After years of excessive expansion and borrowing from foreign investors in Hong Kong, almost all of China’s private real estate developers have collapsed.

Chinese real estate companies listed in Hong Kong were among the worst performing stocks. Property developer Country Garden, one of the biggest victims of the housing crisis, has lost almost three-quarters of its value this year as it moves closer to bankruptcy.

Mr Chan, the finance secretary, blamed the stock market’s poor performance on “misunderstandings caused by Western political biases”, as geopolitical tensions between Beijing and Washington hit their lowest level during the year. But 2023 is the fourth consecutive year that the Hang Seng has recorded losses. Over the same period, Hong Kong’s role as Asia’s financial nerve center has declined as it has been forced to align itself more closely with Beijing under a sweeping security law national.

Hong Kong’s loss of autonomy to China has worried some international investors.

A former British colony, Hong Kong was returned to China in 1997 with a pledge to maintain a high degree of self-government under a policy called “one country, two systems.” For two decades, this allowed Hong Kong to define itself as unique and distinct from the rest of China, while providing financial access to the world’s second-largest economy.

But after citywide protests in 2019, Beijing imposed the national security law, which silenced political debate and stifled civic activity.

More than 100,000 inhabitants have LEFT Hong Kong in recent years, partly due to the security law and strict pandemic restrictions. Many young Hong Kong professionals who are still here have expressed a desire to leave, making it difficult to recruit the talent that has helped the city function as a financial hub.

Once a major hub for Wall Street banks, Hong Kong has experienced an IPO drought this year. Businesses raised the lowest amount since 2001, leading to layoffs at financial institutions across the city.

Many international companies have stopped recruiting for new positions in Hong Kong. With less money entering the stock market and fewer transactions, dozens of brokerages have also closed their doors.

China’s economic slowdown along with geopolitics, elections in major economies including the United States, and central bank actions are likely to make 2024 another volatile year for Hong Kong.

Addressing some of these questions in an interview in a recent interview Writing in the South China Morning Post, Mr Chan said: “2024 will be a year of great uncertainty. »