Advertisement
After a US$1.3 trillion rout, analysts predict more pain in store for Hong Kong’s stock market amid rate increases
- History suggests investors should be wary of more losses in the next one to three months after Hong Kong’s commercial banks lifted their prime rates
- The HKMA warned of more possible rate increases, with the Federal Reserve still to hold two more policy meetings this year
Reading Time:2 minutes
Why you can trust SCMP
4
The slump in Hong Kong stocks to more than a decade-low this week may have further to go as investors in Asia’s third-largest market brace for the fallout from higher borrowing costs in the coming weeks or months.
A succession of challenges, from China’s economic inertia and tech crackdown to Covid-19 border closures and local currency depreciation, have punished investors seeking to bottom-fish for values after a US$1.3 trillion rout this year. Now, the spectre of two more potential rate increases this year could make equity returns even harder to come by as the market slipped into bear territory.
“Hong Kong stocks are facing a tougher environment this time than in 2018, as there are more headwinds like the pandemic, China’s slowdown, capital outflow and burned investors from the regulatory crackdown,” said Chen Hao, a strategist at KGI Securities in Shanghai. “The increase in prime rates can only exacerbate the pessimism on market outlook.”
01:43
What is the Hong Kong Dollar Peg?
What is the Hong Kong Dollar Peg?
The city’s major commercial banks including HSBC and Bank of China (Hong Kong) raised their prime rates by 12.5 basis points effective Friday, after the monetary authority lifted its base rate to a 14-year high of 3.5 per cent on Thursday. They had refrained from reacting to the previous four HKMA increases, which were in lockstep with the Federal Reserve’s moves, since March this year.
Advertisement
The last time Hong Kong’s commercial banks lifted their best lending rates to customers in September 2018, the Hang Seng Index suffered an 11 per cent slump in the next month, according to Bloomberg data. All the benchmark’s four industry sub-gauges tumbled by 5.8 per cent to 11 per cent.
Advertisement
On a three-month basis, post-hike, all but the utilities sub-gauge declined, with financials and property developers losing 8.1 per cent and 0.8 per cent, respectively, while the Hang Seng Index sank 8.2 per cent.
Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x