Efforts to rejuvenate Hong Kong’s shrinking stock market through measures such as immigration plans tied to investments and stamp duty reductions are viewed as temporary solutions. Analysts believe that the fortunes of Asia’s premier financial hub are inextricably linked to a major improvement in China’s economic outlook.
Despite Hong Kong’s market value of around $4.3 trillion, it lags behind other leading global stock markets in terms of turnover. For instance, its daily average turnover between January and June was $11.3 billion, while the Nasdaq saw $261 billion, Japan $27.9 billion, and China’s Shenzhen exchange $77.9 billion during the same period.
Analysts see the stamp duty cut as unlikely to address the underlying issues, such as the exodus of foreign investors and tensions between China and the United States. Hong Kong’s Hang Seng stock index and Hang Seng China Enterprises Index are both down more than 11% this year. Daily turnover has seen a significant drop, halving from an average of HK$160 billion in 2021 to below HK$80 billion on numerous occasions in the second quarter.
The decline in trading volumes has hit small brokerages hard, with a record number of trading participants shutting shop last year. Chinese firms listed in Hong Kong, such as Tencent and Alibaba, dominate turnover on the Hong Kong exchange, making Hong Kong highly dependent on China’s economic prospects.
Eddie Tam, CIO of Central Asset Investments in Hong Kong, believes that funds are not yet finished cutting exposure to China, and foreign investors are likely to continue selling off Hong Kong stocks. Ailing economic growth, a protracted property crisis, high debt levels, and sluggish demand have contributed to China’s economic troubles this year.
The decline in market volumes has had a severe impact on small brokerages in Hong Kong, with concerns about business sustainability. A lack of investor participation and decreased willingness to invest are also driving down stock prices. The situation is further exacerbated by an exodus of local investors and the attraction of trading U.S. stocks among the younger generation, creating a structural problem.
In conclusion, Hong Kong’s stock market woes are likely to persist until there is a substantial improvement in China’s economic prospects and a reduction in tensions between China and the United States.