Analysis: China holds the key to Hong Kong’s shrinking stock market

Analysis: China holds the key to Hong Kong’s shrinking stock market

Analysts say that Hong Kong’s attempts to revive its declining stock market are only temporary solutions. They believe that a significant improvement in China’s economic prospects is necessary for a reversal of fortunes in Asia’s premier financial hub. The government of Hong Kong has been making efforts to boost turnover and revive the stock market, including announcing an immigration plan tied to investments and a reduction in the stamp duty on stock trades. However, foreign investors are reducing their exposure to China due to its opaque policies, struggling property sector, and crackdowns on private enterprise, which has negatively impacted Hong Kong’s financial center and gateway to the world’s second-largest economy.

Hong Kong’s stock market has a market value of around $4.3 trillion, making it one of the top-ranked globally. However, it lags behind other major stock markets in terms of turnover. The daily average turnover between January and June was $11.3 billion, compared to $261 billion for Nasdaq, $27.9 billion for Japan, and $77.9 billion for China’s Shenzhen exchange. Additionally, new share offerings in Hong Kong have not been successful.

While the recent stamp-duty cut may lead to a short-lived rebound in the Hong Kong stock market, experts believe that long-term issues such as the exodus of foreign investors and tensions between China and the United States will continue to weigh on the market. The Hang Seng stock index and the Hang Seng China Enterprises Index have both experienced significant declines this year.

The decline in volumes has had a severe impact on Hong Kong’s small brokerages. Last year, a record 47 out of 638 trading participants on the Hong Kong exchange closed their businesses. Chinese firms listed in Hong Kong, such as Tencent and Alibaba, account for a significant portion of the turnover on the exchange, making Hong Kong dependent on China’s economic performance.

Brokers in Hong Kong are concerned about the sustainability of their businesses due to the extremely low trading volume and the reluctance of investors to buy stocks. This lack of market participation is dampening stock prices, leading to a decline in the Hang Seng Index. Market sentiment is even worse than during the 2008 Global Financial Crisis, with many investors worried about a balance sheet recession in China. This challenging environment has made it difficult to attract new money, creating a structural problem for the market.

In conclusion, Hong Kong’s efforts to revive its stock market are seen as temporary solutions, with analysts emphasizing the need for a major improvement in China’s economic prospects. The decline in volumes has had a significant impact on small brokerages, and the market sentiment is worse than during the 2008 financial crisis. The dependence on Chinese firms listed in Hong Kong and the reluctance of investors to participate in the market have further contributed to the challenges faced by the financial hub.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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