Analysis:China holds the key to Hong Kong's shrinking stock market

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HONG KONG : Hong Kong's efforts to revive its shrinking stock market are mere stopgap solutions, as analysts say a reversal in fortunes for Asia's premier financial hub would not be possible without a major improvement in China's economic prospects.

Hong Kong's government has for months tried to boost turnover and revive a torpid stock market, the latest coming on Wednesday when its leader John Lee announced an immigration plan tied to investments and a cut in the stamp duty on stock trades.

But it compares poorly on turnover, with a daily average of $11.3 billion between January and June compared with $261 billion for Nasdaq, $27.9 billion for Japan and $77.9 billion for China's Shenzhen exchange. New share offerings in Hong Kong have fizzled. The Hang Seng stock index and the Hang Seng China Enterprises Index are down more than 11 per cent each this year.

"I suspect it is due to the perception of worse prospects in the Chinese economy as well as enhanced political risk. The only solution to this is just a reversal of these trends, i.e. better economy and better foreign relations. There is no easy answer." Chinese firms listed in Hong Kong, such as tech giants Tencent and Alibaba, comprise the bulk of the turnover on the Hong Kong exchange, leaving Hong Kong hostage to China's fortunes.

That is dampening stock prices,"so we see the Hang Seng Index going from 20,000 to 18,000 to 17,000.”

 

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