A relentless run of bad news keeps grinding down Hong Kong’s stock bulls. Protests, a global pandemic, a collapsing economy, a crackdown on individual freedoms and now the end of the city’s special status with the U.S.
The Hang Seng Index closed little changed, wiping out an initial 1.6% advance. Chinese technology firms were the worst performers, along with Hong Kong property developers. Mainland Chinese shares also declined.
While the latest news was expected, it highlights Hong Kong’s growing vulnerability to heightened tensions between Beijing and Washington, and adds to the bear case for the city’s listed equities given the unknown impact of sanctions.
The Hang Seng Index is already a global laggard: the gauge lost 11% over the past 12 months through Wednesday, compared with a nearly 3% gain by MSCI’s index of world stocks. By almost any measure, Hong Kong stocks appear cheap. The Hang Seng Index trades at 10.8 times projected 12-months earnings, compared with 14 times for the CSI 300 Index and 22 times for the S&P 500.
To be sure, the Hang Seng Index had a flurry of gains around the imposition of the national security law at the start of this month, supported by mainland inflows. Those gains have faded in the past week, placing the gauge among the bottom 10 performers among 93 global benchmarks tracked by Bloomberg.
Adding to the bear case is a spike in local coronavirus cases, which this week prompted the government to impose some of the most drastic measures yet to contain the outbreak.
“Stocks are underperforming because the local economy is struggling,” said Steven Leung, executive director at UOB Kay Hian. “The virus situation worsened recently and many economic activities have been affected.” MDT/Agencies
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