GT Voice: Global headwinds cause wild market volatility in HK
Published: Mar 20, 2022 09:30 PM
File photo: VCG

File photo: VCG

The volatile performance of the Hong Kong stock market in the face of a raft of global uncertainties over the past weeks may have triggered investors' concerns over the investment value of the market. But Hong Kong's position as one of the world's major financial hubs, with the unswerving support of China's central government, will not change.

The Hang Seng Index has plunged to hit a six-year low, losing 22 percent this year as of Tuesday. But the index quickly rebounded by about 16 percent in the following two trading sessions, thanks to the central government's strong pledge to shore up the capital market, which has greatly solidified investors' confidence.

It should be pointed out that the recent equities volatility in the Hong Kong and the mainland stock markets, which has little to do with the country's economic fundamentals, is mainly due to the recent COVID-19 flare-up in a dozen Chinese provinces and cities, and the abrupt military clash in Ukraine, as well as the US Federal Reserve's raising interest rates that precipitated capital outflows from the emerging markets.

Last month, Hong Kong was pummeled hard by the highly contagious Omicron variant, while the Chinese mainland was also battling a voracious resurgence. While strict anti-virus measures are expected to have some temporary impact on the economy, it is the changing geopolitical situation in Europe that has fueled market volatility.

In addition to the global liquidity squeeze as a result of the Fed's tightening of its monetary policy, the recent conflict between Russia and Ukraine and the US-led Western sanctions against Russia has led to a considerable rise in market risk aversion.

And, early this month, the US government threatened to penalize the US-listed Chinese companies, by announcing a provisional list of five companies at risk of delisting from US exchanges, which proved to be a trigger of investor sell-offs in Hong Kong and the mainland markets.

With all the factors at play, Hong Kong is, to a certain extent, standing at the forefront of a major financial rivalry between China and the US. Investor sentiment will undoubtedly be impacted by disrupted events on the global horizon. However, the investment value of the Hong Kong and the mainland capital markets hasn't seen dramatic changes, and will only become better, backed by the country's strong economic resilience.

As long as Hong Kong can maintain basic financial stability during a period of worldwide turmoil, its advantages as a bridge linking the Chinese mainland and international markets will be on full display, attracting more attention from global investors.

Under such circumstances, what the Chinese mainland needs to do is to provide stable expectations for Hong Kong's financial sector, which is at the core of attracting foreign capital, preventing fund outflow and ensuring Hong Kong's status as a major financial center. If anything, the continuous growth and the opening-up of the Chinese economy are the solid foundation for the development of Hong Kong equity market.

So, more efforts are needed from the government when it comes to promoting the development of the Guangdong-Hong Kong-Macao Greater Bay Area. A close economic cooperation between Hong Kong and the mainland, especially regions like Shenzhen and Zhuhai, will provide better conditions for Hong Kong to better integrate into the overall development of the country, which will help build up more attractive capital markets in both the mainland and Hong Kong.