Under Chinese rule, Hong Kong’s stock market has more than tripled but still lags behind Shanghai’s.
As Bloomberg reports, Hong Kong’s benchmark stock index has posted a total return of more than 230% since Hong Kong’s handover in July 1997, compared with 320% for the Shanghai Composite Index and 580% for the S&P 500. Index in the USA.
The underperformance comes as Hong Kong has shifted from a place dominated by local property developers, banks and utilities to one now inextricably linked to mainland China and Xi Jinping’s vision.
The shift has offered huge opportunities for investors tapping into China’s economic rise. But it has also brought a cycle of sharp ups and downs, as well as far greater risks that were underappreciated until Beijing’s sweeping regulatory crackdown on private business over the past year and a half. Onshore companies now account for two-thirds of stocks listed on the Hang Seng Index.
Winners and losers
Hong Kong’s relative underperformance has been more pronounced since late 2020, when Chinese regulators suspended the listing of Ant Group Co. of Jack Ma and targeted many of the tech giants that have settled in the city’s stock market.
Three of the six largest stocks by market value today come from this sector, making it vulnerable to interventions by Xi, who wants Chinese companies to gain technological superiority from the US while bending their business models to his goal of “common prosperity”.
Highlighting the risks for investors who buy and hold its shares, e-commerce major Tencent Holdings Ltd. saw its total value plummet from the top of 1 trillion. dollars last year to less than $450 billion.
The current turmoil is not only found in Hong Kong stocks. PetroChina Co. it had a similar fate to Tencent, going from a 1 trillion market favorite. dollars in 2007, it’s worth just $138 billion now.
“Unfortunately, I think if we’re talking about Chinese tech companies in Hong Kong or just Chinese companies in general in Hong Kong, in my view, they’re probably going to continue to go through the boom and bust cycle,” said Jian Shi Cortesi, chief investment officer at GAM Investment Management based in Zurich.
That said, she remains bullish on the long-term outlook and sees big opportunities in Hong Kong shares, which have started to rally again after hitting a nadir in March.
“We’re seeing a lot of companies trading at multi-year low valuations,” Cortesi said, adding that some had fallen as much as 90 percent.
Source: Capital
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