▼ Text: Niu Benben
A new stock market storm is kicking off in Hong Kong's stock market, sending tremors through the multi-year boom in the international financial center. Since 2018, the entire Hong Kong stock market has been declining for four consecutive years, and the magnitude of the decline is shocking. Against top of this, the performance of the broader Hang Seng Index has been even more inhumane, and the loss of wealth has dealt a severe blow to the market and its investors.
What is terrifying is that just when large-cap stocks are being severely cut in half, Hong Kong's Growth Enterprise Market has fallen by more than 99%, which is like destruction. Why is Hong Kong, an international financial center, plunged into the biggest crisis in 40 years?
In this crisis, the first issue that needs to be addressed is the lack of liquidity. In 2023, the annual turnover of Hong Kong stocks will be HK$23.6 trillion, and the average daily turnover will only be more than 100 billion, but this level is not as high as the average daily turnover of a popular stock. This extreme imbalance has undoubtedly severely weakened the market vitality of Hong Kong stocks, making the entire stock market continue to be in a zombie state in the face of weak liquidity.
1. The reasons behind the liquidity crisis
Why are Hong Kong stocks mired in such a serious liquidity problem? Behind this, we can summarize three important reasons.
First, the rapid rate hike in the US dollar. Due to historically high inflation in the United States, the Federal Reserve has raised interest rates rapidly in the past two years, reaching an interest rate of more than 5% in just one year. This superb risk-free return has attracted most of the foreign capital, putting Hong Kong stocks under outflow pressure, and the rise in the US dollar has also constituted a major external factor blocking the liquidity of Hong Kong stocks.
Second, domestic macroeconomic expectations have weakened. Over the past 20 years, China's real estate industry has flourished, and residents' spending power has continued to increase. However, in recent years, with the shutdown of the real estate market and weak consumption power, foreign investors have shown a pessimistic outlook on the recovery of China's economy, which is undoubtedly an important internal factor causing the lack of liquidity in Hong Kong stocks.
Third, the two major economies of China and the United States are favored by geopolitical policies. In the context of the reversal of globalization, Hong Kong stocks, as the front line of Sino-US trade frictions, are easily influenced by the policies of the two countries and become victims of geo-economic games. This is also an important external reason for the continuous shrinking liquidity of Hong Kong stocks.
2. Hong Kong's official response strategy
To solve the liquidity crisis faced by Hong Kong stocks, the role of the official is particularly crucial.
In terms of coping strategies, Hong Kong officials have adopted a series of actions in the hope of stabilizing market confidence.
First, it promises to reduce stamp duty, which aims to stimulate market trading, improve the liquidity of the stock market, and allow more investors to see the prosperity of the market, and therefore bring more capital inflows.
On the other hand, the reduction of stamp duty is also a clear signal that Hong Kong officials will help the market out of its predicament and restore investor confidence.
At the same time, Hong Kong-listed companies no longer sit idly by, but have begun to vigorously promote the buyback program. In 2023, their buyback amount exceeded HK$125.9 billion, a move that undoubtedly played a positive role in restoring market confidence and improving the liquidity of the stock market.
3. Adjustment of investment strategy of Hong Kong stocks
In the face of the liquidity crisis in the Hong Kong stock market, investors need to adopt a more savvy strategy to invest.
First of all, investors should control their positions, that is, they need to keep a certain amount of cash at all times to cope with possible market fluctuations.
Secondly, investors also need to be patient enough not to make impulsive decisions for short-term fluctuations in the market, but to gradually increase their positions in order to realize additional gains when market conditions improve.
However, in this process, investors should also understand that there is no absolute safety and security in the capital market, and all investments have certain risks, so in the process of dealing with the liquidity crisis of Hong Kong stocks, we need to do a good job of risk prevention at the same time to ensure that our investments are within the acceptable risk boundary.
Summary and outlook
Looking back at the history of Hong Kong's stock market, the current liquidity crisis can be said to be the biggest challenge it has encountered in the past 40 years, and it is undoubtedly a heavy blow to Hong Kong as an international financial center.
However, we should also note that Hong Kong officials and listed companies are already taking action to actively respond to this crisis. As investors, we need to take precautions and responses to be prepared for more challenges in the future.
The emergence of the liquidity crisis in Hong Kong stocks has made us start to think deeply about and understand the market mechanism and the macroeconomic factors behind it. This crisis reminds us that investors must fully consider the actual situation of the market, including market liquidity, policy environment, global economic trends and other factors when making investment decisions, in order to control risks as much as possible. Are we ready to meet the new opportunities and risks that may arise as we face the challenges of the future?