Hong Kong’s Decades-Long Wealth Gains Fade Away Amid China’s Supervision

Taipei-based accountant Edelweiss Lam watched the Hong Kong stock market wipe out 14 months of gains last week as the Hang Seng Index fell below 15,000 points.

It wasn’t the first time Lam had seen this happen. He has been investing on and off in Hong Kong stocks since the late 1990s.

The stock market index in Hong Kong had dropped below 15,000 points during several crises, such as the SARS outbreak in 2003, the Global Financial Crisis in 2008, and the recent lockdowns in 2022. However, Lam, an investor, stated that this time the situation felt different as the stock market had tumbled “back to square one,” despite the fact that ups and downs are a natural part of investing.

“It seems I cannot see the future,” Lam told Al Jazeera by phone from Hong Kong.

The reason, Lam said, is China.

As Beijing tightens its grip on all aspects of life in Hong Kong, including the economy, and concerns persist about China’s post-pandemic recovery, investors have been shifting their focus to other markets. Despite more than 25 years since Hong Kong’s return to China, the Hang Seng index has failed to make significant progress.

As of Friday, the index is below 16,100 points, which is lower than its level on July 1, 1997, the day of the handover. Meanwhile, stocks in popular markets such as the United States and Japan have seen substantial growth over the same period.

Investors who have invested in the SP500, which is the most widely used benchmark for the US stock market, have seen their investment value grow by almost 10 times since 1997.

Lam, whose investment portfolio consists of blue-chip stocks, fixed-term deposits, and property, stated that any new announcement from the Chinese government regarding industry regulations or control could cause significant market fluctuations.

“The relationship between Hong Kong and China is closer and closer, the control is tighter, so we cannot ignore what they are doing in China.”

Hong Kong has been witnessing China’s strict actions in recent years, which include the enforcement of a severe national security law in the city. Additionally, China has been imposing regulations on corporate giants such as Alibaba and Tencent, and have been conducting raids on foreign companies on the mainland.

Many of China’s largest companies are dual-listed in both Hong Kong and China, and constitute a significant portion of the Hang Seng Index. Along with Chinese banks and other tech companies, they play a crucial role in the index.

China has been struggling to recover from the impact of COVID-19 and strict pandemic restrictions. Alongside these issues, there are structural concerns such as a shrinking population, high local government debt, and a slow-moving real estate crisis.

Gross domestic product grew 5.2 percent in 2023 – the slowest pace since the last few decades, except during the pandemic. Foreign investors’ confidence is decreasing, even though Beijing claims that China is open for business.

Last year, China experienced an 8% decline in foreign direct investment inflows, the first drop in 12 years, with total investment amounting to $157.1bn.

Frustration Mounts Over Government Inaction

According to Lee, China’s achievement of its economic growth target last year was not very remarkable, as Beijing had set a comparatively low target. Analysts have estimated that since early 2021, around $6 trillion, which is equivalent to more than one-quarter of the output of the US economy, has been wiped off stock markets in China and Hong Kong.

According to Bloomberg data, China’s CSI 300 Index, which gauges the performance of the top 300 companies listed on the Shanghai and Shenzhen stock exchanges, has witnessed a decline of over 40% in the last three years. Similarly, the Hang Seng has also fallen by 50% in the same period. As a result, investors are now showing interest in other markets such as Japan and the US, which are predicted to have a bullish 2024.

Last week, the Nikkei 255 Index, which represents the top companies of the Tokyo Stock Exchange, reached its highest point in over 30 years. Similarly, the S&P 500 in New York closed at an all-time high for the sixth consecutive day on Thursday.

Hong Kong’s declining rights and freedoms, which are guaranteed until 2047 under “one country, two systems,” have fueled the crisis of confidence.

Since the implementation of the national security law in 2020, Hong Kong’s political opposition and independent media have been virtually eradicated, and hundreds of people have been arrested for peaceful activism and free speech.

Lam stated that she made the decision to move her pension fund overseas last year. Furthermore, she intends to sell her remaining stock investments in Hong Kong, even if that means suffering a loss. Lam expressed her frustration with the government’s policy towards the economy, as she feels that they have not taken any concrete steps to address the issues.

According to her, the government only talks about taking actions, but she has yet to see any real progress.

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