Hong Kong Stock Market Faces Greater Burden Than Mainland China

[Asia Economy Reporter Hwang Yoon-joo] KB Securities analyzed that despite the dollar's strength leading to yuan weakness and the US-China conflict, investing in mainland China is more advantageous than the Hong Kong stock market. They also predicted that a meaningful rebound in the yuan exchange rate is unlikely in the short term.

On the 17th, KB Securities researcher Park Soo-hyun stated, "Considering the intensifying US-China conflict ahead of the November US midterm elections, the Hong Kong stock market is at a disadvantage compared to the mainland until the end of the year."

Researcher Park explained, "In addition to concerns about the slowdown in the Chinese economy, many Chinese healthcare companies under increasing US pressure are listed on the Hong Kong stock market, and the Hong Kong market has a high proportion of foreign investors sensitive to US-China tensions."

He analyzed, "We recommend building a portfolio focused on the mainland. The food and beverage, leisure, and banking sectors are expected to show relatively favorable trends."

[Image source=Yonhap News]

Researcher Park also forecasted that the yuan's weakness will continue in the short term due to ongoing downward pressure on China's economy until the end of the year.

He pointed out, "The pace of interest rate hikes by the US Federal Reserve (Fed) is exceeding market expectations," adding, "China's economy is struggling to find a trigger for a rebound due to the worsening real estate market, continued COVID-19 prevention policies, and lack of fiscal policy."

Unlike the US, China is lowering its benchmark interest rates, raising ongoing concerns about capital outflows considering the US-China interest rate differential. Additionally, the real estate market has rapidly deteriorated due to regulations and the impact of COVID-19 that have continued since last year.

Researcher Park said, "The People's Bank of China responded to downward pressure on the real estate market by cutting the 5-year Loan Prime Rate (LPR), linked to mortgage rates, by 15 basis points," and analyzed, "Although the Chinese government continues efforts to stabilize the economy through monetary policy, a combination of easing COVID-19 prevention policies and fiscal policy is necessary to resolve fundamental issues."

He predicted that the Chinese government will ease depreciation pressure on the yuan by utilizing foreign exchange reserves and further lowering the foreign currency reserve requirement ratio.

He noted, "Major announcements such as changes in COVID-19 prevention policies and strengthening fiscal policy are likely to come after the Party Congress on October 16, where President Xi Jinping's third term will be decided," and criticized, "The reason the Chinese government has not been able to fully implement fiscal policy despite economic concerns is due to the financial difficulties of local governments."

Local government revenues are closely related to real estate. Researcher Park forecasted, "To address this issue, the Chinese government may expand credit supply through shadow banking channels." He added, "It is necessary to closely monitor the trends in total social financing and shadow banking growth over the next three months."

This content was produced with the assistance of AI translation services.