HONG KONG (Reuters) - Hong Kong's efforts to revive its shrinking stock market are merely stopgap solutions, as analysts say a turnaround in fortunes for Asia's top financial center would not be possible without an improvement important in China's economic prospects.
The Hong Kong government has been trying for months to boost turnover and revive a sluggish stock market; the last of them occurred on Wednesday, when its leader John Lee Announced an immigration plan linked to investments and a cut in stamp duty on stock market operations.
But the region's main financial center and gateway to the world's second-largest economy is a shadow of its former self, as foreign investors reduce their exposure to a China they see as increasingly isolated by its opaque politics, fighting property and crackdowns on private enterprise.
With a market value of around $4.3 trillion, Hong Kong is home to one of the highest-ranked stock markets globally, just behind those of the United States, Japan, China and Europe.
But it compares poorly in terms of turnover, with a daily average of $11.3 billion between January and June, compared with $261 billion for Nasdaq, $27.9 billion for Japan and $77.9 billion for China's Shenzhen stock exchange. . New share offerings in Hong Kong have failed.
Dickie Wong, executive director of research at Kingston Securities, said the stamp duty cut was in line with expectations.
It could spur a "short-lived rally" in the Hong Kong stock market, he said, but longer-term issues such as the exodus of foreign investors and tensions between China and the United States would remain outstanding.
The Hang Seng Stock Index (.HSI) and the Hang Seng index of Chinese companies (.HSCE) They are down more than 11% each this year.
The H.S.I. (.HSI) It reached a high of 22,700.85 in late January and is currently around 17,000. Daily turnover has fallen below HK$80 billion on numerous occasions since the second quarter, halving from an average of HK$160 billion in 2021.
"Liquidity has clearly decreased as foreign investors are reducing their exposure to China, as many investors, including us, access Chinese stocks from Hong Kong," said Rob Brewis, portfolio manager at asset manager Aubrey Capital. Management, based in the United Kingdom.
"I suspect it is due to the perception of worse prospects in the Chinese economy, as well as greater political risk. The only solution to this is simply to reverse these trends, that is, a better economy and better foreign relations. There is no one answer easy. "
Eddie Tam, CIO of Hong Kong-based Central Asset Investments, also believes that funds are not yet finished reducing exposure to China, and foreign investors are "not done selling Hong Kong stocks."
China's economy has stumbled this year after a brief post-COVID rebound, with growth hit by a prolonged housing crisis, high debt levels and sluggish demand.
RUNNERS REGRET
The drop in volumes has been terrible for Hong Kong's hundreds of small brokerages. Local media reported that a record 47 of the 638 trading participants on the Hong Kong stock exchange closed last year.
Chinese companies listed in Hong Kong, such as technology giant Tencent (0700.HK) and Alibaba (9988.HK)They represent the majority of turnover on the Hong Kong stock market, leaving Hong Kong hostage to China's fate.
Alvin Cheung, associate director at Prudential Brokerage, whose main businesses include securities brokerage for retail investors, margin financing and IPO underwriting, said his industry is "very quiet" now and that he has been "concerned about the sustainability of our business for a time".
โThe current trading volume is extremely low and investors are reluctant to buy because they do not see other investors participating. The willingness to invest has dropped dramatically," Cheung said.
This is weakening stock prices, "so we see the Hang Seng index go from 20,000 to 18,000 to 17,000."
"Market sentiment is even worse than in 2008," said Alex Wong, partner at Alex KY Wong Asset Management Company, referring to the global financial crisis.
โAt that time, everyone still believed in going through the cycle. The problem this time is that many people are worried about a balance sheet recession (in China)," said Wong, who has been investing in the city for more than 30 years.
Local investors who had been buying in Hong Kong for many years were discouraged, while the younger generation was more interested in trading US stocks, he said. "It's very difficult to attract new money, so we have a structural problem."
Reporting by Summer Zhen and Xie Yu Editing by Vidya Ranganathan and Shri Navaratnam
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