Since 2019, multiple domestic and foreign political and economic factors have been superimposed on each other, and the complicated market environment has caused large fluctuations in Hong Kong stocks
In January-April 2019, China’s decision-making departments focused on steady growth of policy, positive changes in financial regulatory policies, the Federal Reserve’s continued release of dovish signals, the progress of Sino-US economic and trade negotiations, and the support of multiple favorable factors such as valuation at the historical bottom As a result, investor risk appetite has rebounded significantly. The Shanghai Composite Index rose 23.4%, the CSI 300 Index rose 30.0%, leading the world’s major stock markets. The US Dow Jones Industrial Index rose 14.0%, and the Hang Seng Index also achieved a large increase of about 14.9%.
In May 2019, investors’ expectations of the uncertainty of Sino-US trade policy and escalation of trade frictions heated up, market risk aversion increased, and the RMB exchange rate was under pressure. The Hong Kong stock market is facing downward pressure. On May 5, 2019, U.S. President Trump said that the tariff rate on the US $ 200 billion of imported goods from China was increased from 10% to 25%. At the same time, affected by factors such as trade frictions and weak consumption, the Chinese economy is still facing some downward pressure. China ’s economic data showed signs of weakness in April. Exports, consumption, industrial output, and manufacturing investment growth have all further slowed down. Only real estate investment has maintained strong growth. Looking back at the market in May, the Hang Seng Index fell 9.4%. Over the same period, the Shanghai Composite Index fell 5.8%, the CSI 300 Index fell 7.2%, and the US Dow Jones Industrial Index fell 6.7%.
Local stocks fall sharply
Since June 2019, the pressure on the Hong Kong capital market has increased, and the factors of instability facing the Hong Kong market have increased. In particular, geopolitical risks have risen significantly, which has had a greater impact on Hong Kong’s capital market. From early June to September 30, the Hang Seng Index fell 3.0%, underperforming major global stock markets. Over the same period, the Shanghai Composite Index rose 0.2%, the Shanghai and Shenzhen 300 Index rose 5.1%, and the US Dow Jones Industrial Index rose 8.5%. According to the performance analysis of the 50 constituent stocks of the Hang Seng Index, the sharp decline in Hong Kong’s local bank real estate and utility stocks is an important reason for the weak performance of the Hong Kong stock market. From the beginning of June to September 30, 8 of the top 10 companies in the Hang Seng Index fell by local stocks in Hong Kong.
In October 2019, several important factors affecting the Hong Kong stock market showed positive changes, investors’ risk appetite increased, and the Hong Kong stock market ushered in a wave of valuation repairs. First, substantial progress has been made in the new round of China-US economic and trade negotiations, and the RMB exchange rate has stabilized and rebounded, alleviating risk aversion in the Hong Kong stock market. Secondly, the Chief Executive of Hong Kong issued the 2019 Policy Address, which mainly covers the four aspects of housing, land supply, improvement of people’s livelihood and economic development, especially focusing on the issues of the people’s livelihood that are most concerned by the society such as housing and land supply, and improving market popularity. Third, the Fed started to cut interest rates for the third time this year, announced the resumption of “non-QE” balance sheet expansion policy, and once again released signals of loose monetary policy. The Federal Reserve announced that it will purchase 60 billion U.S. dollars of short-term Treasury bonds each month starting on October 15th and last at least until the second quarter of 2020, which means that the size of this “non-QE” asset purchase may reach up to 500 billion U.S. dollars. The shift in monetary policy tone of major global central banks, represented by the US Federal Reserve, has helped improve the global liquidity environment and investor sentiment.
Limited rebound space for Hong Kong stocks
Fourth, the opening up of China’s financial industry is accelerating, and the interconnection between the Mainland and Hong Kong capital markets will be closer. However, due to the downward pressure on the Chinese mainland economy, GDP growth rate decreased from 6.2% in the second quarter to 6.0% in the third quarter. The fundamentals of Hong Kong stocks are greatly affected by the Mainland. The downward pressure on the Mainland economy still means that Hong Kong stocks have room to rebound Restricted. Looking back at the market in October, the Hang Seng Index rose by 3.1%, which was better than the major global stock markets. Over the same period, the Shanghai Composite Index rose 0.8%, the Shanghai and Shenzhen 300 Index rose 1.9%, and the US Dow Jones Industrial Index rose 0.5%.
In November, the US “Hong Kong Human Rights and Democracy Bill 2019” was signed into law, and geopolitical risks in Hong Kong intensified again, and the risk aversion mood in the Hong Kong stock market rose. On the other hand, with the increasing interconnectedness between the Mainland and Hong Kong capital markets, the influence of mainland Chinese investors in Hong Kong’s capital market has increased. The current valuation of the Hong Kong stock market is attractive. Southbound funds (mainland funds) have continued to achieve net inflows in the past few months, which has played an important role in supporting the stability of the Hong Kong market. In mid-November, the China Securities Regulatory Commission announced the full launch of the “full circulation” reform of H shares. At a time when the continuous fermentation of geopolitical risks in Hong Kong has caused relatively obvious adverse effects on Hong Kong’s capital market, the SFC announced that it will comprehensively launch the reform of “full circulation” of H shares, which will help Hong Kong’s capital market maintain long-term stable development. As of November 29, a net inflow of southbound funds reached RMB 26.6 billion this month, and a cumulative net inflow of southbound funds this year was RMB 185 billion, much higher than the net inflow of RMB 64 billion in the same period last year. Looking back at the market in November, the Hang Seng Index fell 2.1%. Over the same period, the Shanghai Composite Index fell 1.9%, the CSI 300 Index fell 1.5%, and the US Dow Jones Industrial Index rose 3.7%.
Southbound inflows continue
In general, the pressure on the Hong Kong stock market in 2019 has increased, and geopolitical risks have increased significantly. However, the continued inflow of southbound funds (mainland funds) has played an important role in supporting the stability of the Hong Kong market. As of November 29, 2019, the Hang Seng Index rose by only 1.9% this year, underperforming major global stock markets. During the same period, the Shanghai Composite Index rose 15.2%, the Shanghai and Shenzhen 300 Index rose 27.2%, and the US Dow Jones Industrial Index rose 20.2%. The Hang Seng AH Share Premium Index rose from 117.2 at the end of December 2018 to 129.4 on November 29, 2019, which is equivalent to an average premium of A shares over H shares of 29.4%, which is higher than the average of the Hang Seng AH Share Premium Index in the past 3 years and 23.4 The 10-year average is 14.9%.
This article is my personal opinion and it does not constitute and is not intended to constitute any financial or investment advice. Nothing in this article constitutes any contract or commitment and should not be taken as any contract or commitment