Amid the continuous rise of the global core stock indices, the total market capitalization of Hong Kong-listed stocks has lost more than HK$17 trillion (US$2.2 trillion) in just over two years. Likewise, the total market value of mainland A-shares has seen a similar decline and has evaporated by more than 16 trillion yuan (US$2.2 trillion) in the past year alone.
At the close of trading on Aug. 17, Hong Kong Hang Seng Index (HSI) had fallen by more than 7 percent during the year, and the Hang Seng China Enterprises Index (HSCEI) had dropped by 6 percent year to date (YTD). According to a “Securities Times,” with the decline in trading volume, lack of market confidence, and discounted valuations of new stocks, IPO funds raised via the Hong Kong bourse in the first half of 2023 fell out of the top three in the world, is currently ranked in 6th place. Such IPO performance is the worst in its history.
The last bull market in Hong Kong stocks began in April 2018, when Chinese concept stocks listed in the United States returned to Hong Kong one after another. Based on monthly statistics, the total market capitalization of Hong Kong stocks reached a peak of HK$53 trillion (US$6.8 trillion) at the end of May 2021.
But since then, the Hong Kong stock market has begun a seismic decline for over two years. As of the close on Aug.t 17, 2023, the HSI touched the 18326 mark, a cumulative drop of more than 40 percent from its peak in 2021. Other indices, such as the Hang Seng Technology Index (HSTI), also fell as low as 4158.28, a massive cumulative drop of more than 60 percent from its 2021 peak.
From May 2021 until today, among the various Hang Seng Composite Industry Sub-Indices, the steepest decline is seen in health care (HEA), with a cumulative decline of 60.3 percent, followed by properties & construction (P&C), with 53.4 percent, industrials (IND) with 50, information technology (IT) on 49.9, consumer staples with 36.3, and the cumulative decline in consumer discretionary (CD) was 29.2 percent.
Based on monthly data, statistics from the Securities Times show that as of the end of July 2023, the total market capitalization of Hong Kong stocks was about HK$35.98 trillion (US$4.6 trillion), meaning more than HK$17 trillion (US$2.2 trillion) had been lost in a little over two years. If divided according to trade groups, from the end of May 2021 to the end of July 2023, information technology has seen the most loss in total market value, with a cumulative loss of HK$8.4 trillion (US$1.1 trillion), followed by HK$2.6 trillion (US$330 billion) in properties & construction, and the loss in health care was HK$2.15 trillion (US$270 billion), HK$1.6 trillion (US$200 billion) in the financial sector, HK$1 trillion (US$0.13 billion) in consumer discretionary, HK$761 billion (US$97.2 billion) in industrials, and HK$669 billion (US$84.2 billion) in consumer staples. The telecommunications sector is the only one that has performed well, with an increase of HK$416.1 billion (US$53.1 billion).
Mr. Hui Yik-bun, executive director and CEO of Bright Smart Securities & Commodities Group Ltd., said that mainland funds are the current major driving force for the Hong Kong stock market. However, due to the continuous weakening of the yuan in the past six months, the investment capacity in Hong Kong stocks by those funds has declined, resulting in Hong Kong stocks losing much of their momentum with daily turnover continuing to shrink unabated.
Weak trading in the market means less liquidity for individual stocks. According to the record, on Aug. 15, as many as 865 stocks in the Hong Kong bourse had zero daily transactions, with nil investor interest. There were also 1,384 stocks with a daily turnover of less than HK$100,000 (US$12,800), accounting for 53 percent of all listed stocks.
According to the report, the lower turnover has directly distorted many listed firms’ intention to truly reflect their company’s fundamentals. At the same time, listed companies have to pay high costs to maintain their listing status. After due regard to the balance of all pros and cons, some Hong Kong-listed firms decided to go private and delisted.
Data shows that since the beginning of 2023, 14 Hong Kong-listed firms have issued privatization and delisting announcements, of which five have completed the process, and nine are waiting to complete the delisting through privatization procedures. In 2022, there were 15 similar privatization and delisting cases recorded.
In addition, funds investing in Hong Kong stocks have also performed poorly this year, and most of them suffered losses. Shanghai-Shenzhen-Hong Kong Fund is a public offering fund that can invest in some Hong Kong stocks through the channels of Shanghai-Hong Kong Stock Connect, and Shenzhen-Hong Kong Stock Connect. According to statistics from Wind, among the 209 Shanghai, Shenzhen, and Hong Kong funds, as many as 117 have recorded negative returns since the beginning of 2023, accounting for 56 percent of the total. Among them, the net value of 33 funds with heavy positions in Hong Kong stocks fell by more than 10 percent YTD, and the net value of funds in technology, Internet, and healthcare all fell by 10-20 percent.
Not only that, but the performance of the HSI also dragged down the investment income of the Hong Kong Exchange Fund. According to the documents released by the Hong Kong Monetary Authority (HKMA), as of the first half of 2023, among the investment income of the Hong Kong Exchange Fund, the loss of Hong Kong stock investment was US$4.8 billion (US$610 million). The Exchange Fund’s Hong Kong stock investment income has been losing money for several consecutive quarters, with a loss of HK$8.5 billion (US$1.1 billion) in the first half of 2022 and a loss of HK$19.5 billion (US$2.5 billion) for the entire year.
According to the “China Securities Daily,” in 2022, the Shanghai Stock Exchange Composite Index dropped by 15.12 percent, while the Shenzhen Stock Exchange Component Index suffered a drop of 25.85 percent, the ChiNext Index by 29.37 percent, and the STAR50 Index also dropped by 31.35 percent.
Excluding the total market capitalization of 4.64 trillion yuan (US$640 billion) of new shares listed in 2022, the total market capitalization of A-shares in 2022 decreased by 16.21 trillion yuan (US$2.2 trillion). There were 206 million investors in mid-2022; the average loss to each mainland stockholder in 2022 amounted to 78,700 yuan (US$10,800).
In contrast, looking at other global core stock indices, the NASDAQ year-to-date (as of Aug. 15) has a cumulative increase of 31.74 percent, the S&P 500 has an incremental increase of 16.94 percent, South Korea’s KOSDAQ 32.74 percent, the Nikkei 225 with 23.58 percent, and Taiwan’s Mid-Cap 100 also rose 33.05 percent on a cumulative basis.
At the end of trading on Aug. 21, the HSI had dropped to 17623.29, a further decline of 703 points.
