Hong Kong's Hang Seng Index fell to its lowest level in more than a decade after the US Federal Reserve raised interest rates by 0.75 percentage points. The Fed signaled that more large rate increases were likely, prompting investors to sell off stocks.
The index declined 1.6% to 18,147.95 Thursday, its lowest close since December 2011. Rising rates, high inflation, Russia’s invasion of Ukraine and various fears around China have all caused jitters in the market this year. While some of these factors are beyond our control, we can take steps to mitigate the effects of others. For example, by diversifying our portfolios and staying informed of market developments, we can help reduce the impact of market volatility on our investments.
The stock market has taken a hit this year, with the index falling 22%. This is a significant drop from where it was trading a decade ago, when it was 12% lower.
Hong Kong's de facto central bank raised its base rate by three-quarters of a percentage point on Thursday, following the Fed's lead. The Hong Kong Monetary Authority generally mirrors any rate adjustments made by the Fed, as the city's currency peg to the US dollar ties its monetary policy to that of the US central bank.
Tai Hui, chief market strategist for Asia-Pacific at J.P. Morgan Asset Management, said that the U.S. market still has a significant impact on Asian markets. He noted that there is renewed concern about an economic slowdown in the U.S., which is likely to impact exports in Asia.
The index is a key gauge of Hong Kong's broader stock market, which is one of the world's largest outside the U.S. and includes many companies that do much of their business in mainland China. Its stocks have seesawed as comments from China's top officials sparked big rallies at several low points this year, before wavering again.
The Hang Seng has become increasingly China-focused in recent years, which has meant that it has had to absorb the market reaction to the state of China’s economy, according to Redmond Wong, a market strategist for Greater China at Saxo Markets Hong Kong.
China's export boom is slowing down, which is bad news for the country's economy. The worsening property downturn is making things even worse, with home prices dropping in many cities.
It does not appear that China's property sector will experience a sudden, magical recovery in the fourth quarter, according to Carlos Casanova, senior Asia economist at Union Bancaire Privée. Millions of apartments in China that buyers have already paid for remain unfinished, leading some purchasers to threaten to withhold mortgage payments. This poses a challenge to the sector's recovery, Casanova said.
Some market participants are waiting for more information on policy after the Communist Party congress in October. This event is usually held every ten years, and it is expected that President Xi Jinping will be ratified for a third term. Xi has stated that the country cannot let its guard down against Covid-19.
If the zero-Covid policy is continued indefinitely after the October congress, this will likely disappoint many foreign investors, according to Louis Lau, director of investments at Brandes Investment Partners in San Diego. He predicts that there will be more selling of stocks, especially among companies that are related to consumption.
Andy Maynard, head of equities at China Renaissance, said that despite the Hang Seng's decline, Hong Kong remains an entry point for foreign investors who want to tap into Chinese stocks. This is because foreign investors have limited access to mainland China-traded stocks. "The Shanghai Composite Index will continue to be an important gauge of China's equity market and a key destination for global investors," said Mr. Maynard.
The Hang Seng Tech Index, which includes social-media and videogame giant Tencent Holdings Ltd., e-commerce company Alibaba Group Holding Ltd. and food-delivery company Meituan, fell 1.7%. China's efforts to regulate technology giants and official pressure on sectors like e-commerce, videogames, gambling and tutoring have caused market instability.
HSBC Holdings PLC and AIA Group Ltd. both saw their shares drop by 3.6% and 2.4% respectively. This is due to Hang Seng Indexes Co. reducing the weight of large financial stocks in the Hang Seng Index.
The CSI 300 index of the largest stocks listed in Shanghai or Shenzhen fell 0.9% in mainland China.
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