Date
23 June 2017
Although some believe Hong Kong stocks might go through a correction in June after the recent gain, others expect further upside as the city celebrates the 20th anniversary of the handover. Photo: China Daily
Although some believe Hong Kong stocks might go through a correction in June after the recent gain, others expect further upside as the city celebrates the 20th anniversary of the handover. Photo: China Daily

Handover factor in Hong Kong equity market

While Hong Kong equities have been doing very well recently, mainland A shares have underperformed.

Similarly, as Hong Kong housing prices keep rising, the mainland property market is undergoing an adjustment.

Following the latest round of policy tightening, new home sales in Beijing slumped 65 percent month on month, and some real estate agencies were even forced out of business.

The city’s secondary housing transactions slid 34.2 percent in May from the month before, with average prices falling 2.4 percent. Housing prices are expected to fall further.

Nevertheless, the housing market in Hong Kong appeared to be red-hot despite a possible rate hike in the US this month and government tightening measures.

Apart from liquidity reasons, positive market sentiment ahead of the 20th handover anniversary is probably a factor behind the difference.

Although some believe Hong Kong stocks might go through a correction in June after the recent gain, some continue to expect the market may hit new highs as the city celebrates the 20th anniversary of the handover.

It was once a general concern that Hong Kong might lose its strength as a global city after the handover. Nevertheless, Hong Kong has been ranked as the world’s freest economy in the Index of Economic Freedom of The Heritage Foundation for 20 consecutive years.

According to statistics, about 8,000 overseas and Chinese companies have set up offices in Hong Kong, half of these are either regional headquarters or representative offices.

That has happened as more global companies consider Hong Kong as a gateway to the mainland market.

Over the years, not only has Hong Kong cemented its role as a global financial, trading and shipping hub for decades, it has also further enhanced its advantages since the handover as China deepens its opening-up process.

The city is ranked fourth in the Global Financial Centers Index, trailing behind London, New York and Singapore. More than 70 of the world’s top 10 banks have a presence in Hong Kong.

In the past two decades, Hong Kong rode through the 1997-1998 Asia financial crisis and 2008 global financial crisis. The city has gradually restructured and diversified its economy into trade in services and tech innovation from long-term dependence on property and finance. Also, traditional economic sectors like finance and logistics also witnessed further integration with the mainland market.

Meanwhile, Hong Kong remains the favorite global financial hub for mainland companies. It has become the world’s largest offshore renminbi center and IPO destination for mainland Chinese corporates.

In sum, the positive energy of Hong Kong will keep building up. Perhaps the UK election and possible US rate hike may bring some pressure in June but the overall direction of Hong Kong equities should stay positive, or at least stable.

This article appeared in the Hong Kong Economic Journal on June 5

Translation by Julie Zhu

[Chinese version 中文版]

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RT/RA

Senior investment banker

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