Hong Kong’s stock market on track for a return to brighter days
- Mainland Chinese regulator has announced a strong package of measures to support city’s status as Asia’s – and indeed the world’s – premier financial hub
It has been a trying time for investors in Hong Kong markets. The former initial public offering capital of Asia, and the world, in the first quarter saw its worst listing market since the global financial crisis in 2008.
After slumping 14 per cent in 2023, the moribund Hang Seng Index has shown few signs of life, with high interest rates offering less risky investment alternatives and good news scarce.
Good news is precisely what China’s regulator has given investors, announcing a package of measures designed to restore Hong Kong’s status as a financial hub.
The China Securities Regulatory Commission has announced it would facilitate listings by leading Chinese companies and expand the Stock Connect scheme.
Policy assistance had been expected for some time. President Xi Jinping has repeatedly declared it was necessary to enhance Hong Kong’s status as an international financial centre, a line the CSRC reiterated earlier this month. f
China watchdog launches 5 measures to help rescue Hong Kong’s battered market
Beijing’s top man on Hong Kong, Xia Baolong, said support was on the way. He pointed to the city’s rule of law, competitiveness and innovation as part of its unique advantages, adding that new policies would help “maximise the dividends of one country, two systems”.
The five measures include relaxing eligibility criteria for exchange traded funds (ETFs) in the Stock Connect mechanism linking the Hong Kong, Shanghai and Shenzhen markets, and loosening listing rules for industry-leading Chinese firms wanting to go public in Hong Kong.
Other measures include letting qualified real estate investment trusts (REITs) from the mainland and Hong Kong access the Stock Connect channel, and include yuan-denominated stock trading counters on the Hong Kong side of the trading mechanism. A fifth measure optimises mutual recognition arrangements for funds.
Analysts say the new policy steps should help widen the investor base, encourage inflows into the Hong Kong market and enhance liquidity.
Hong Kong stocks rose on the news, but the current high-interest-rate environment still puts near-term pressure on the Hang Seng and mainland bourses.
Chinese market watchdog’s support to divert IPOs from mainland to Hong Kong
With the city’s base rate hovering at a 17-year high of 5.75 per cent, investors just have to leave their money in fixed deposits and they can beat local inflation. Capital has fled to the US to take advantage of the highest rates in two decades.
But the measures are timely. The US Federal Reserve is expected to start cutting interest rates later in the year. The fresh policies should help position Hong Kong and mainland stock markets to take advantage when capital flows eventually return.
The Hang Seng’s constituents trade at 5.8 times current earnings, the cheapest among 18 worldwide indexes. If things go to plan, Hong Kong could see itself regaining its former glory as Asia’s financial centre, a scenario that would be welcomed by investors and policymakers alike.
