ASIA CORN ER
// By Leslie Richardson
Hong Kong Stock Market Slumps Amid Regulatory and Market Pressures
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eversing the strong start in the first months of 2021, Hong Kong stocks were hit by a multitude of obstacles throughout the year ranging from China’s widespread crackdowns across numerous industries, uncertainly of contagion from China’s real estate industry to increasing geopolitical tensions between the US and China. As of November 8th, the Hang Seng Index was down around 10% for the year.
Dragging down the market is a weakening sentiment for Chinese tech stocks which represent approximately a quarter of the index’s weighting. This summer, China shook up the markets in an unprecedented crackdown covering a broad range of industries as it moves to build a fairer society through its “common prosperity” policy. The regulatory crackdown gave rise to an atmosphere of uncertainly around the unpredictability of China’s economic and financial policies and increased investors’ anxiety as hundreds of billions of dollars were wiped out from global markets. Leading the broader crash in Chinese tech stocks was video streaming platform Kuaishou Technology which raised $6.2 billion in February in the largest IPO in Hong Kong this year. Kuaishou is among the worst performing stocks of the year down over 69% from its initial offering as its business took a blow from China’s policies to curtail inappropriate online content and the influencer industry. China set limitations on the time and content minors can consume on gaming, live-streaming platforms and social networks in its newly published 10-year national guidelines on children’s development. The government also put the brakes on its $70 billion online education industry by banning tutoring firms from making a profit on subjects taught in school causing New Oriental Education to plunge over 85% for the
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year. Additionally, Macau’s casino stocks lost $17 billion after authorities proposed regulations to tighten oversight, and some medical beauty stocks suffered following a government move to tighten advertising guidelines in the industry. However, in the light of the lower than expected GDP of 4.9% for the third quarter, investors are expected to get some relief as China eases on its common prosperity policies in an effort to rejuvenate growth. Additional concerns weighing on Hong Kong’s market is the uncertainly around China’s $62 trillion real estate market which contributes to approximately 28% to 30% of the country’s GDP. China’s second largest property developer, Evergrande, made worldwide news as it experienced a liquidity crunch in September. Contagion effects have rattled investors as risk of a fallout could impact the economy with problems spilling over to direct and indirect suppliers, many of which are small and medium-size enterprises. Six developers have so far run into trouble. According to The Guardian, nearly a third of China’s property developers may struggle
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