The Hang Seng Gets Dunked On – Again

Hong Kong bears the brunt of geopolitical de-risking as its mainline index sinks for the fourth straight year – all the while US equity markets bask in the prospect of lower interest rates and AI-driven euphoria. 

The 17,000 level seems to be an auspicious one for the Hang Seng. As of Friday, likely to the glee of a particular subset of chart technicians, it seemed to be magnetically attracted to that very number, hovering just above and below it.

But despite the sharp highs and lows and general volatility of recent trading sessions, there is very little Christmas cheer for the local equity market again this year.

Fourth Consecutive Year

Again is an important word in that context. Year-to-date, we are looking at another double-digit drop (-13.84 percent as of midday), the fourth consecutive year that the market has declined, after falling 15.5 percent in 2022, 14.1 percent in 2021, and 3.4 percent in 2020.

The last time it was up was in 2019 when it posted a pre-pandemic gain of 9.1 percent. In other words, not only have we completed one full Olympic Games or World Cup cycle - but we are also in an entirely new era. Back then, none of us knew anything about covid, quarantines, or testing, or had ever heard of the mRNA acronym, particularly when it came to vaccines. The US also had a different president.

Strong Rebound in US

That makes for another important point. As ABC News indicates, the US equity markets staged a strong rebound this year, with the S&P 500 on track to rise by a quarter, the Dow Jones seeing a gain of 13 percent, and the Nasdaq up by an ear-pounding 44 percent.

The disparate development likely has something to do with investor perceptions of geopolitical de-risking between the US, EU, and China, not least given that many of the top 50 index constituents comprise large, internationally known issuers.

Key Constituents

That includes big tech names such as Alibaba, Tencent, Xiaomi, and even electric carmaker BYD, as well as key financials ICBC, Bank of China, and insurer Ping An, among others.

So what explains all this? Investors are very sensitive to perception and prospects. In their head, they may have already discounted into prices the de-risking ostensibly underway between the major economic blocs. As finews.asia reported Thursday, investor interest in China is «shockingly low».

The Future Discounted

Still, this is a deep hit to the psyche of the locally based Hong Kong investor, not least given that the equity market, and property, also in a multi-year decline, were traditionally seen as guaranteed paths to measurable prosperity. That is no longer the case, at least for now.

But whatever happens, things will not stay this way forever and that is something the average Hong Kong resident should pay heed to and take some solace from when opening their annual mandatory retirement fund statement that is currently being mailed out to many.