Last year was a difficult one for Hong Kong stocks, which underperformed other major stock markets worldwide. The Hang Seng Index fell by 7.2%, and recorded its largest intra-day decline in history on July 8, when it closed 5.8% lower, the Securities and Futures Commission said in its annual review of securities markets, issued last week.
Hong Kong’s markets, to include the China Enterprises Index (HKCEI), also became the cheapest in Asia-Pacific in 2015, with full year price-to-earnings ratios of 9.68 and 7.16, respectively.
The bright spot was that Hong Kong became the top market globally for initial public offerings. Companies raised a total of $33.7bn through IPOs in Hong Kong. The second most active market was the NYSE Euronext, which raised $19.7bn.
The best performing major stock index globally in 2015? The Shenzhen Composite, which had a third consecutive year of gains, soaring 63%. It was also the most expensive market, trading on average 53.6 price-to- earning basis.
The China connection
The close connection between China nd Hong Kong means that a volatile renminbi and weak mainland economic growth are key risks to the Hong Kong stock market. the SFC said.
“Worries over the mainland’s economic slowdown linger despite monetary easing,” the report said. “Investor sentiment has been fragile and is susceptible to hints about the economic outlook and changes in government policy.”
Given China’s importance to the global economy, any sharp movements in its currency affect not just Hong Kong but other emerging markets whose fortunes are tied to China. During August 11-13, the renminbi devalued by a total of 4.4%, causing panic among investors.
“Investors are also concerned that renminbi devaluation could trigger competitive currency depreciation in emerging markets and accelerate capital outflows,” the SFC added.
The SFC cautioned that uncertainties surrounding the US rate hike could also weigh on the market. Although the US Federal Reserve has pledged to raise interest rates at a gradual pace, the SFC said that the “actual pace for future rate hikes remains uncertain” and that subsequent hikes could be a drag on the global economy.
Hong Kong and Vietnam had the cheapest markets in Asia-Pacific in 2015, but Vietnam also showed three consecuitve years of positive results.