Hong Kong’s stock market kicked off the new year with a dismal performance, as the latest data showed China’s manufacturing sector contracted for the second month in a row in December. The Hang Seng Index fell 1.5 per cent to 16,867.51, the lowest close since October 2020. The index has lost 14 per cent in 2023, making it the worst-performing major market in the world.
The main drag on Hong Kong stocks was the weak economic outlook for China, the city’s largest trading partner. The official purchasing managers’ index (PMI) for China’s manufacturing sector came in at 49.6 in December, below the 50-mark that separates expansion from contraction. This was the second consecutive month of contraction, and the lowest reading since February 2020, when the Covid-19 pandemic hit China hard.
The PMI data indicated that China’s economy was facing multiple challenges, such as power shortages, supply chain disruptions, property market slump, and regulatory crackdowns on various sectors. Analysts said that China’s growth momentum was likely to remain weak in the first quarter of 2024, and that more policy support was needed to stabilize the economy.
Hong Kong stocks suffer across the board
The gloomy economic outlook weighed on Hong Kong stocks across the board, with only four out of the 55 constituents of the Hang Seng Index ending in positive territory. The worst-hit sectors were technology, consumer discretionary, and real estate, which have been under pressure from China’s regulatory tightening and Covid-19 restrictions.
Some of the biggest losers on the index were:
- Alibaba Group Holding, the owner of this newspaper, which plunged 6.9 per cent to HK$114.80, the lowest since July 2019. The e-commerce giant has been facing regulatory scrutiny and fines in China, as well as a US probe into its accounting practices.
- Meituan, the food delivery and online services platform, which dropped 5.8 per cent to HK$136.90, the lowest since March 2020. The company has been fined and investigated by Chinese authorities for alleged monopolistic practices and labor violations.
- Evergrande Group, the debt-laden property developer, which tumbled 5.4 per cent to HK$1.57, the lowest since January 2014. The company has been struggling to repay its creditors and avoid default, amid a liquidity crisis and a slump in the property market.
Outlook remains bleak for Hong Kong stocks
Analysts said that Hong Kong stocks were unlikely to see a rebound anytime soon, as the market faced multiple headwinds, such as:
- The prospect of monetary policy tightening by the US Federal Reserve, which could trigger capital outflows and currency depreciation in emerging markets.
- The resurgence of Covid-19 cases in Hong Kong and mainland China, which could hamper the economic recovery and the reopening of borders.
- The political uncertainty and social unrest in Hong Kong, which could erode investor confidence and business sentiment.
Some analysts said that Hong Kong stocks were undervalued and oversold, and that there could be some bargain-hunting opportunities for long-term investors. However, they also warned that the market volatility and downside risks were likely to persist in the near term.