Taipei, Taiwan – Like many Hong Kongers, accountant Edelweiss Lam spent the final week watching the town’s inventory market wipe out 14 months of positive factors because the Hold Seng Index fell beneath 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 for the reason that late Nineties, had seen it occur.
The index dropped beneath 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 sport, Lam mentioned watching the important thing measure of Hong Kong’s inventory market tumble “again to sq. one” felt completely different this time.
“It appears I can not see the longer term,” Lam informed Al Jazeera by telephone from Hong Kong.
The explanation, Lam mentioned, is China.
As Beijing will increase its management over all elements of life in Hong Kong, together with the financial system, and gloom persists in regards to the state of China’s post-pandemic restoration, buyers have been voting with their cash and seeking to different markets.
Greater than a quarter-century after Hong Kong’s return to China, the Hold Seng is kind of again to the place it was throughout its ultimate days as a British colony.
On Friday, the index hovered beneath 16,100 factors – decrease than it was on July 1, 1997, the day of the handover.
Over the identical interval, shares in the USA, Japan and different well-liked markets have flourished.
Traders within the SP500, the most well-liked measure of the efficiency of the US market, have seen their cash develop practically 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 severely,” 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 in recent times, from the imposition of a draconian nationwide safety legislation on the town to tightening regulation of company giants akin to Alibaba and Tencent and raids on international firms on the Chinese language mainland.
Lots of China’s largest firms are dual-listed in Hong Kong and China and make up a big portion of the Hold Seng Index together with Chinese language banks and different tech firms.
On the identical time, China’s financial system has struggled to recuperate from the affect 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 % in 2023 – the weakest efficiency in many years, excluding the pandemic.
Regardless of Beijing’s insistence that China is open for enterprise, international buyers’ confidence is waning.
Final yr, China recorded the primary drop in international direct funding in 12 years, with inflows declining 8 % to $157.1bn.
“Once we have a look at broader enterprise sentiment each for the monetary sector and for the final financial system – at the start, financial fundamentals each in Hong Kong and in China will not be doing very nicely in the intervening time,” Chim Lee, a China analyst on the Economist Intelligence Unit, informed Al Jazeera.
Lee mentioned China hitting its financial progress goal final yr was “not notably spectacular” as Beijing set a comparatively weak goal.
Analysts estimate that some $6 trillion – the equal of over one-quarter of your entire output of the US financial 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 % over the previous three years, whereas the Hold Seng has fallen 50 % over the identical interval, in response to Bloomberg information.
Traders are as a substitute 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 Trade’s high 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] financial system might now be not more than a big rounding error on China’s GDP however it nonetheless performs an necessary position in finance and capital market transactions for and with the Mainland. So it’s self-evident that bearish sentiment and overwhelmed up inventory worth 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, informed Al Jazeera.
Hong Kong’s declining rights and freedoms – that are purported to be assured till 2047 below an settlement often called “one nation, two techniques” – have added gas to the disaster of confidence.
Because the passage of the nationwide safety legislation in 2020, the town’s political opposition and impartial media have been all however worn out and tons of of individuals have been arrested for non-violent offences associated to activism and speech.
A whole lot of 1000’s of Hong Kongers have left the town amid Beijing’s tightening management together with their cash.
Lam mentioned she determined final yr to maneuver her pension fund abroad and she or he 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 financial 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 financial 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 combined outcomes – regardless that the federal government moved shortly and the general financial system was on a stronger footing.
Reminiscences of that rescue plan and issues that Beijing won’t make troublesome however obligatory reforms are one purpose 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 feel that is, to begin, the distinction,” Garcia Herrero informed 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 subsequent bullet is decrease,” she mentioned.
