Taipei, Taiwan – Like many Hong Kongers, accountant Edelweiss Lam spent the final week watching town’s inventory market wipe out 14 months of beneficial properties because the Grasp Seng Index fell beneath the psychological threshold of 15,000 factors.
It was not the primary time Lam, who has been investing on and off in Hong Kong shares for the reason that late Nineties, had seen it occur.
The index dropped beneath 15,000 factors throughout SARS in 2003, the World Monetary Disaster in 2008, and zero-COVID lockdowns in 2022.
However whereas ebbs and flows are a part of the funding sport, Lam mentioned watching the important thing measure of Hong Kong’s inventory market tumble “again to sq. one” felt totally different this time.
“It appears I can’t see the longer term,” Lam instructed Al Jazeera by cellphone from Hong Kong.
The explanation, Lam mentioned, is China.
As Beijing will increase its management over all elements of life in Hong Kong, together with the financial system, and gloom persists in regards to the state of China’s post-pandemic restoration, buyers have been voting with their cash and trying to different markets.
Greater than a quarter-century after Hong Kong’s return to China, the Grasp Seng is kind of again to the place it was throughout its ultimate days as a British colony.
On Friday, the index hovered beneath 16,100 factors – decrease than it was on July 1, 1997, the day of the handover.
Over the identical interval, shares in the US, Japan and different common markets have flourished.
Buyers within the SP500, the most well-liked measure of the efficiency of the US market, have seen their cash develop almost 10-fold since 1997.
“If there’s any new announcement from the Chinese language authorities about rules or the management of some trade, then the market can fluctuate very critically,” mentioned Lam, whose funding portfolio consists of blue chip shares, fixed-term deposits and property.
“The connection between Hong Kong and China is nearer and nearer, the management is tighter, so we can’t ignore what they’re doing in China.”
Hong Kong has had a front-row seat to China’s crackdowns lately, from the imposition of a draconian nationwide safety legislation on town to tightening regulation of company giants comparable to Alibaba and Tencent and raids on overseas corporations on the Chinese language mainland.
A lot of China’s largest corporations are dual-listed in Hong Kong and China and make up a big portion of the Grasp Seng Index together with Chinese language banks and different tech corporations.
On the identical time, China’s financial system has struggled to get better from the impression of COVID-19 and Beijing’s harsh pandemic restrictions, amid nagging structural points together with a shrinking inhabitants, excessive native authorities debt, and a slow-moving actual property disaster.
Gross home product formally grew 5.2 p.c in 2023 – the weakest efficiency in a long time, excluding the pandemic.
Regardless of Beijing’s insistence that China is open for enterprise, overseas buyers’ confidence is waning.
Final yr, China recorded the primary drop in overseas direct funding in 12 years, with inflows declining 8 p.c to $157.1bn.
“Once we take a look at broader enterprise sentiment each for the monetary sector and for the final financial system – initially, financial fundamentals each in Hong Kong and in China usually are not doing very nicely in the mean time,” Chim Lee, a China analyst on the Economist Intelligence Unit, instructed Al Jazeera.
Lee mentioned China hitting its financial progress goal final yr was “not notably spectacular” as Beijing set a comparatively weak goal.
Analysts estimate that some $6 trillion – the equal of over one-quarter of your complete output of the US financial system – has been wiped off inventory markets in China and Hong Kong since early 2021.
China’s CSI 300 Index, which measures the highest 300 corporations on the Shanghai and Shenzhen inventory exchanges, has fallen greater than 40 p.c over the previous three years, whereas the Grasp Seng has fallen 50 p.c over the identical interval, in line with Bloomberg information.
Buyers are as an alternative flocking to different markets like Japan and the US the place analysts predict a bullish 2024.
The Nikkei 255 Index, an index of the Tokyo Inventory Alternate’s high corporations, posted highs not seen in over 30 years final week, whereas the S&P 500 in New York closed at an all-time excessive for the sixth day in a row on Thursday.
“[Hong Kong’s] financial system might now be not more than a big rounding error on China’s GDP but it surely nonetheless performs an essential function in finance and capital market transactions for and with the Mainland. So it’s self-evident that bearish sentiment and overwhelmed up inventory value valuations in China correct wash over into [Hong Kong] too,” George Magnus, an affiliate at Oxford College’s China Centre and Analysis Affiliate at SOAS, London, instructed Al Jazeera.
Hong Kong’s declining rights and freedoms – that are imagined to be assured till 2047 below an settlement often known as “one nation, two techniques” – have added gas to the disaster of confidence.
Because the passage of the nationwide safety legislation in 2020, town’s political opposition and impartial media have been all however worn out and tons of of individuals have been arrested for non-violent offences associated to activism and speech.
Tons of of hundreds of Hong Kongers have left town amid Beijing’s tightening management together with their cash.
Lam mentioned she determined final yr to maneuver her pension fund abroad and she or he plans to promote her remaining inventory investments in Hong Kong at a loss.
“They are saying they wish to do one thing, however we don’t see actual motion,” Lam mentioned of the federal government’s coverage on the financial system.
In October, Hong Kong slashed stamp responsibility on property gross sales and inventory transfers, however consumption and tourism have but to get better to pre-pandemic ranges.
Analysts say that reviving both Hong Kong and China’s economy will take much bolder action.
Beijing is considering a potential $278bn rescue plan for the stock market, Bloomberg reported this week, citing sources close to the matter, but many analysts argue broader structural reforms are needed to restore investor confidence.
A similar rescue plan deployed after a tumble in China’s stock market in 2015 produced mixed results – even though the government moved quickly and the overall economy was on a stronger footing.
Memories of that rescue plan and concerns that Beijing will not make difficult but necessary reforms are one reason why the rescue plan has been met with a lukewarm response, said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.
“Here it’s really the market saying, I’m sorry you’re not growing. I don’t trust your numbers; your future looks gloomy – which wasn’t the case in 2015. It was perceived to be a temporary shock, so I think this is, to start, the difference,” Garcia Herrero told Al Jazeera.
Beijing arguably also has less room to manoeuvre this time thanks to its high levels of debt and limited scope of monetary easing.
“They’ve used so many bullets, the credibility of the next bullet is lower,” she said.