How bad is the Hong Kong stock market? Take a look at Taiwan

November 29, 2023 11:25
Photo: Reuters

Yesterday at 1:45pm, the Hang Seng Index was at 17,329, lower than Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) , marking the first time in 30 years that HSI was lower than TAIEX.

That was a stark difference compared to five years ago when the Taiwan stock index was just below 11,000 compared to a record high of 33,000 for HSI.

That also means HSI, which closed at 17,354 yesterday, was down 48 per cent from its peak in the last six years.

Bad news for Mandatory Provident Fund holders with exposure to Hong Kong stocks as they have seen their account balance keep shrinking. Some may even see negative total return since MPF’s debut in 2000.

There were three explanations to this phenomenon, according to Hong Kong Economic Journal columnist Ko Tin Yau.

First, our HSI is going nowhere. All major technology, financial and property stocks were in red since 2018. By comparison, the MSCI World Index surged over 50 per cent – and that showed how underperformed Hong Kong market really was.

Second, TAIEX was powered by Taiwan Semiconductor Manufacturing Company (TSMC). With a staff force of 73,000, the globally leading foundry accounts for some 28 per cent of the index.

By comparison, Tencent, the largest company listed in Hong Kong, had a market capitalisation of HK$3 trillion, trailing behind TSMC’s 14.7 trillion Taiwan dollars (HK$3.66 billion). TSMC went up 169 per cent in the past five years.

Third, Hong Kong, unlike other countries, cannot benefit from the strong US dollar, which depreciated currencies from other countries but popped up their market index.

For example, TAIEX went up 21 per cent year-to-date, compared to a near 14 per cent drop in HSI.

To make things worse, daily turnover of Hong Kong stocks was halved to an average of HK$70 billion. That explains why the government decided to cut the stamp duty in a move to stimulate the turnover.

Yes, the total size of Hong Kong stock market is about HK$32 trillion, far larger than that of Taiwan, which was around 54 trillion Taiwan dollars, or HK$13.4 trillion, but who will do better in the long run will be anybody’s guess.

It should be noted that HSI is now near a historic low of 10.4 price-to-earning ratios. Since over 80 per cent of Hong Kong market are dominated by China-related stocks, the key deciding factor still hinges on if and when investors' confidence returns to China.

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EJ Insight writer