Taipei, Taiwan – Like many Hong Kongers, accountant Edelweiss Lam spent the final week watching the town’s inventory market wipe out 14 months of good points because the Cling Seng Index fell under the psychological threshold of 15,000 factors.
It was not the primary time Lam, who has been investing on and off in Hong Kong shares because the late Nineties, had seen it occur.
The index dropped under 15,000 factors throughout SARS in 2003, the World Monetary Disaster in 2008, and zero-COVID lockdowns in 2022.
However whereas ebbs and flows are a part of the funding recreation, Lam mentioned watching the important thing measure of Hong Kong’s inventory market tumble “again to sq. one” felt totally different this time.
“It appears I can not see the long run,” Lam instructed Al Jazeera by cellphone from Hong Kong.
The rationale, Lam mentioned, is China.
As Beijing will increase its management over all facets of life in Hong Kong, together with the economic system, and gloom persists concerning the state of China’s post-pandemic restoration, buyers have been voting with their cash and trying to different markets.
Greater than a quarter-century after Hong Kong’s return to China, the Cling Seng is kind of again to the place it was throughout its ultimate days as a British colony.
On Friday, the index hovered under 16,100 factors – decrease than it was on July 1, 1997, the day of the handover.
Over the identical interval, shares in the US, Japan and different fashionable markets have flourished.
Traders within the SP500, the most well-liked measure of the efficiency of the US market, have seen their cash develop almost 10-fold since 1997.
“If there’s any new announcement from the Chinese language authorities about rules or the management of some business, then the market can fluctuate very critically,” mentioned Lam, whose funding portfolio consists of blue chip shares, fixed-term deposits and property.
“The connection between Hong Kong and China is nearer and nearer, the management is tighter, so we can not ignore what they’re doing in China.”
Hong Kong has had a front-row seat to China’s crackdowns lately, from the imposition of a draconian nationwide safety regulation on the town to tightening regulation of company giants corresponding to Alibaba and Tencent and raids on international firms on the Chinese language mainland.
A lot of China’s largest firms are dual-listed in Hong Kong and China and make up a big portion of the Cling Seng Index together with Chinese language banks and different tech firms.
On the similar time, China’s economic system has struggled to recuperate from the impression of COVID-19 and Beijing’s harsh pandemic restrictions, amid nagging structural points together with a shrinking inhabitants, excessive native authorities debt, and a slow-moving actual property disaster.
Gross home product formally grew 5.2 p.c in 2023 – the weakest efficiency in a long time, excluding the pandemic.
Regardless of Beijing’s insistence that China is open for enterprise, international buyers’ confidence is waning.
Final 12 months, China recorded the primary drop in international direct funding in 12 years, with inflows declining 8 p.c to $157.1bn.
“After we have a look at broader enterprise sentiment each for the monetary sector and for the final economic system – firstly, financial fundamentals each in Hong Kong and in China usually are not doing very nicely in the mean time,” Chim Lee, a China analyst on the Economist Intelligence Unit, instructed Al Jazeera.
Lee mentioned China hitting its financial development goal final 12 months was “not significantly spectacular” as Beijing set a comparatively weak goal.
Analysts estimate that some $6 trillion – the equal of over one-quarter of the output of the US economic system – has been wiped off inventory markets in China and Hong Kong since early 2021.
China’s CSI 300 Index, which measures the highest 300 firms on the Shanghai and Shenzhen inventory exchanges, has fallen greater than 40 p.c over the previous three years, whereas the Cling Seng has fallen 50 p.c over the identical interval, based on Bloomberg information.
Traders are as an alternative flocking to different markets like Japan and the US the place analysts predict a bullish 2024.
The Nikkei 255 Index, an index of the Tokyo Inventory Alternate’s prime firms, posted highs not seen in over 30 years final week, whereas the S&P 500 in New York closed at an all-time excessive for the sixth day in a row on Thursday.
“[Hong Kong’s] economic system might now be not more than a big rounding error on China’s GDP but it surely nonetheless performs an necessary function in finance and capital market transactions for and with the Mainland. So it’s self-evident that bearish sentiment and crushed up inventory value valuations in China correct wash over into [Hong Kong] too,” George Magnus, an affiliate at Oxford College’s China Centre and Analysis Affiliate at SOAS, London, instructed Al Jazeera.
Hong Kong’s declining rights and freedoms – that are purported to be assured till 2047 underneath an settlement often known as “one nation, two methods” – have added gasoline to the disaster of confidence.
For the reason that passage of the nationwide safety regulation in 2020, the town’s political opposition and unbiased media have been all however worn out and a whole bunch of individuals have been arrested for non-violent offences associated to activism and speech.
A whole bunch of hundreds of Hong Kongers have left the town amid Beijing’s tightening management together with their cash.
Lam mentioned she determined final 12 months to maneuver her pension fund abroad and he or she plans to promote her remaining inventory investments in Hong Kong at a loss.
“They are saying they wish to do one thing, however we don’t see actual motion,” Lam mentioned of the federal government’s coverage on the economic system.
In October, Hong Kong slashed stamp obligation on property gross sales and inventory transfers, however consumption and tourism have but to recuperate to pre-pandemic ranges.
Analysts say that reviving each Hong Kong and China’s economic system will take a lot bolder motion.
Beijing is contemplating a possible $278bn rescue plan for the inventory market, Bloomberg reported this week, citing sources near the matter, however many analysts argue broader structural reforms are wanted to revive investor confidence.
An analogous rescue plan deployed after a tumble in China’s inventory market in 2015 produced blended outcomes – although the federal government moved rapidly and the general economic system was on a stronger footing.
Reminiscences of that rescue plan and issues that Beijing won’t make troublesome however needed reforms are one cause why the rescue plan has been met with a lukewarm response, mentioned Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.
“Right here it’s actually the market saying, I’m sorry you’re not rising. I don’t belief your numbers; your future appears gloomy – which wasn’t the case in 2015. It was perceived to be a short lived shock, so I believe that is, to start out, the distinction,” Garcia Herrero instructed Al Jazeera.
Beijing arguably additionally has much less room to manoeuvre this time due to its excessive ranges of debt and restricted scope of financial easing.
“They’ve used so many bullets, the credibility of the following bullet is decrease,” she mentioned.
