Hong Kong’s Hang Seng Index is on course to close at its lowest level in more than a decade, with stocks selling off after the Federal Reserve approved its third consecutive interest-rate rise of 0.75 percentage point and signaled additional large increases were likely.
The index opened 2% lower at 18,080.93, putting it on track to close at its lowest point since late 2011. Rising rates, high inflation, Russia’s invasion of Ukraine and various fears around China—including a regulatory crackdown, a property downturn and the country’s strict Covid-19 policies—have all caused jitters in the market this year.
The index, whose stock components as of late August were collectively valued at the equivalent of $2.637 trillion, has fallen 23% this year as of early afternoon Thursday. It was 13% lower than where it was trading a decade ago.
Hong Kong’s de facto central bank on Thursday followed the Fed’s move in raising its base rate by three-quarters of a percentage point. The Hong Kong Monetary Authority generally follows in lockstep any rate adjustments by the Fed, as the city’s currency peg to the U.S. dollar ties its monetary policy to that of the U.S. central bank.
“The U.S. market still drives Asian markets to a great degree,” said Tai Hui, chief market strategist for Asia-Pacific at J.P. Morgan Asset Management. “There is a renewed concern about economic slowdown in the U.S., so that is going to impact…a lot of the 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, and that means it has had to absorb the market reaction to the state of China’s economy, said Redmond Wong, a market strategist for Greater China at Saxo Markets Hong Kong.
China’s export boom, which has powered the country’s economy through the pandemic, is sputtering. The worsening property downturn, with home prices dropping in many cities, has also dampened the outlook for the economy.
“It is not looking like it’s going to be a sudden recovery and inflection magically in the fourth quarter,” Carlos Casanova, senior Asia economist at Union Bancaire Privée, said of China’s property sector. Millions of apartments in China that buyers have already paid for remain unfinished, leading some purchasers to threaten to withhold mortgage payments. That poses a challenge to the housing sector’s recovery, Mr. Casanova said.
Some market participants said they are watching for more visibility into policy after the twice-a-decade Communist Party congress scheduled for October. The event is expected to break with recent precedent and ratify a third term for President
who has repeatedly said the country can’t relax its fight against Covid-19.
An indefinite continuation of the zero-Covid policy after the October congress “would probably be dashing a lot of hopes for foreign investors,” said Louis Lau, director of investments at Brandes Investment Partners in San Diego. “You’ll see more selling, especially consumption-related companies,” he said.
The Hang Seng’s decline aside, Hong Kong remains an entry point for those who want to tap into Chinese stocks, given the limited access foreign investors have for mainland China-traded stocks, said Andy Maynard, head of equities at China Renaissance.
“It remains and will remain an incredibly important index that gives the world the ability to view China’s equity market in a place where they can invest,” Mr. Maynard said.
The Hang Seng Tech Index, which includes social-media and videogame giant
Tencent Holdings Ltd.
, e-commerce company
and food-delivery company
fell 2.2%. China’s efforts to rein in technology giants and official pressure on sectors like e-commerce, videogames, gambling and tutoring have rattled markets.
AIA Group Ltd.
—both among the stocks in the financial sector, which makes up 35% of the Hang Seng—dropped 3.2% and 2.8%, respectively. Hang Seng Indexes Co., which compiles the index, has made changes that include reducing the weight of large financial stocks.
In mainland China, the CSI 300 index of the largest stocks listed in Shanghai or Shenzhen fell 0.8%.
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