Hong Kong Stocks Rebound with 6-Day Gain, New Issues Warm Up

• Article
• 2024-07-11
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Although Hong Kong's status as an international financial hub is unquestionable, over the past two years, the Hong Kong stock market has been under pressure due to factors such as the continuous interest rate hikes by the Federal Reserve and the economic cycle.

Overall, market participation has been low, and liquidity has been less than satisfactory.

Entering late September, with the Federal Reserve entering a rate-cutting cycle and the opening of the mainland policy window, the Hong Kong stock market finally welcomed a breath of fresh air, and the long-lost lively atmosphere returned.

Compared to A-shares, due to the pegged exchange rate system of the Hong Kong dollar to the US dollar, the transmission of the Federal Reserve's monetary policy to the Hong Kong stock market is more direct, and the "damage" received is greater.

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To combat inflation, the Federal Reserve raised interest rates 11 times consecutively from March 2022 to July 2023, with a cumulative increase of 525 basis points.

During this period, the Hang Seng Index suffered a significant decline, with a low in October 2022 falling to 14,597.31 points, setting a new low in over a decade.

On September 18th local time, the Federal Reserve announced a substantial rate cut of 50 basis points.

Following this, the Hong Kong Monetary Authority lowered the benchmark interest rate by 50 basis points to 5.25%, and on the same day, many banks in Hong Kong followed suit in cutting interest rates.

The Federal Reserve's interest rate cut and the local rate cut in Hong Kong will directly reduce the financing costs in Hong Kong and improve the liquidity environment.

After the good news came out, the Hong Kong stock market reacted quickly, and as of September 20th, it had achieved six consecutive days of gains, with a cumulative increase of nearly 7% in six trading days.

In addition, on September 23rd, the Hang Seng Index continued to rise, with a gain of 0.1% as of press time, returning to a high point not seen in more than two months.

The recovery of investor confidence has prompted active trading in the Hong Kong stock market.

According to data previously released by the Hong Kong Stock Exchange, the average daily transaction amount of the Hong Kong securities market in August 2024 and the first eight months was only 95.5 billion yuan and 106.8 billion yuan, respectively.

On September 20th, the single-day transaction amount of the Hong Kong stock market reached 176.8 billion Hong Kong dollars, the highest in nearly four months.

Hong Kong's Financial Secretary, Paul Chan Mo-po, stated in a blog post on September 22nd that the Federal Reserve's half-percentage-point interest rate cut last week, coupled with the earlier interest rate cuts by several major global central banks, has strengthened the financial market's expectation of a gradual decline in global interest rates.

The loose financial environment is also beneficial to the atmosphere of the asset market and the business environment of industry and commerce.

Guoxin Securities in its research report believes that a new round of growth in the Hong Kong stock market has begun.

With the excellent mid-term performance and the official start of the Federal Reserve's interest rate cut process, the Hong Kong stock market launched an upward offensive last week.

At the industry level, growth stocks sensitive to interest rates (biotech, tech hardware, etc.

), sectors with a high proportion of overseas US dollar financing, Hong Kong local dividends, and even real estate, may also benefit marginally.

However, the Federal Reserve's interest rate cut is favorable for the Hong Kong stock market in the short term, but in the medium to long term, it is more important to focus on the recovery of policy and economic momentum in mainland China.

CICC stated that the Federal Reserve's interest rate cut can bring greater flexibility in stages, but the long-term sustained rise of the Hong Kong stock market still comes from domestic growth and policy.

Greater space requires subsequent policy efforts to promote the repair of fundamentals.

This year, the global economic environment has been complex and changeable, with frequent political and economic risks, coupled with the Federal Reserve's tight monetary policy, leading to a continuous slowdown in global IPO market activity, and the Hong Kong IPO market was relatively weak in the first half of the year.

According to Wind data statistics, 30 companies were listed in the Hong Kong stock market in the first half of this year, slightly down from 31 last year; the net amount of funds raised in the initial offering was 10.941 billion Hong Kong dollars, a significant decrease of 22.2% from 14.067 billion Hong Kong dollars last year.

Since July, the Hong Kong IPO market has continued to recover, with major IPOs coming one after another.

Since July, companies such as Midea Group (00300.HK), Black Sesame Intelligence (02533.HK), and Xi Rui (02507.HK) have been listed on the Hong Kong Stock Exchange.

Among them, the recently listed Midea Group is a rare large-cap tech stock in the Hong Kong IPO market in recent years, with a fundraising amount of up to 31 billion Hong Kong dollars, making it the second-largest new stock globally this year.

With the addition of Midea Group, Paul Chan mentioned that Hong Kong's IPO fundraising amount this year has exceeded the total of last year and has risen to the fourth place globally.

Not only that, but many companies are also queuing up for IPOs in Hong Kong.

Paul Chan revealed that currently, about 100 companies are queuing up to list on the Hong Kong Stock Exchange, many of which are applications for a financing scale of over 1 billion US dollars.

Hong Kong Stock Exchange CEO Nicolas Aguzin also recently stated, "Benefiting from the market's recovery and continuous reforms, we have seen signs of recovery in Hong Kong's new stock market."

Paul Chan pointed out that in addition to the new stock market, the follow-up financing activities of listed companies have also been active, raising more than 20 billion US dollars in funds this year.

In addition, Hong Kong has continued to record net inflows of funds, with total bank deposits increasing by about 4% to 16.8 trillion Hong Kong dollars in the first seven months of this year compared to the end of last year.

Next, as the favorable effects of policies continue to be released, the Hong Kong IPO market is expected to continue to warm up.

In April of this year, the China Securities Regulatory Commission issued five measures for the capital market's cooperation with Hong Kong, supporting qualified leading domestic industry companies to list and raise funds in Hong Kong.

At the same time, coupled with the overall slowdown in the issuance speed of A-shares, it is expected that the number of domestic companies choosing to list in Hong Kong will continue to increase.

In addition, on August 23rd, the Hong Kong Stock Exchange announced a reduction in the market value threshold for listing of specialized technology companies under Chapter 18C, and the relevant reforms took effect on September 1st.

Hong Kong Stock Exchange Co-Chief Operating Officer and Head of Markets, Louisa Cheung, stated that the five specialized technology industries covered by the 18C rules are mostly industries that conform to the new quality of productive forces, and in the future, we may see more of these companies listed on the Hong Kong Stock Exchange.

It is worth mentioning that in recent years, new economy companies have become the main force in the Hong Kong IPO market.

According to data from the Hong Kong Stock Exchange, from the beginning of the new listing system to the end of December 2023, 299 listed companies have raised a total of 945 billion Hong Kong dollars, with 65% of the funds raised coming from new economy companies; the proportion of total funds raised by new economy companies increased from 38% in 2017 to 72% in 2023, and the proportion of total market value increased from 1.2% in 2017 to 24% in 2023.

This trend indicates that the importance of new economy companies in Hong Kong's capital market is increasing day by day.

With the rapid development of industries such as technology, healthcare, and green energy, companies in these fields are becoming the focus of investors.

In addition, it indicates that the implementation of the new listing system has provided more financing channels and opportunities for these companies, promoting the innovation and growth of listed companies.

Moreover, as an international financial center, Hong Kong's capital market's support for new economy companies not only helps to promote the diversified development of the local economy but also enhances its competitiveness in the global financial market.

In the future, with the addition of more new economy companies, Hong Kong's capital market is expected to continue to maintain vitality and provide more investment opportunities for investors.