Introduction P.4 P.12 - P.30
The Side Effect to Hong Kong’s financial market
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The outbreak of the Russian-Ukrainian war on February 24 caught the global financial market severely impacted. Hong Kong has not been spared, whose financial market has been affected. Given that there are few direct links between Hong Kong and Russia and Ukraine in trade, economy, finance and other fields, our interviewed experts believed that Hong Kong will not be directly affected by the war. However, the impact of the Russian-Ukrainian conflict on global trade, economy, finance, etc. is likely to indirectly affect Hong Kong. As a highly open financial center, Hong Kong is closely connected with global financial markets. For example, side effects such as rising U.S. prices may bring more risks to the Hong Kong market.
This special issue is intended to study the impact of the Russian-Ukrainian war and other related international affairs on the Hong Kong stock market, focusing on the proportion and amount of import and export trade between Russia and Ukraine in Hong Kong; Sino Russian trade volume; Russian energy exports; International oil prices, major gasoline imports from Hong Kong and price trends, etc. Due to our limited manpower, material resources and time, we chose 30 representative Hang Seng constituent stocks and analyzed the direct or indirect impact of the war on their business and other aspects from their annual report in the past five years, and predicted their future trend. Not only that, we also consulted the analysis and suggestions of experts, hoping to have a certain reference value for the investors.
Since the Ukraine war in late February, the German Stock Index DAX 30 once plummeted by 16% in early March, Dow Jones Industrial Average fell by 9%, followed by the Hong Kong stock market falling below 19,000 points in mid-March. In order to gain an in-depth understanding of the relationship between war and stock markets’ performance in Hong Kong, we analyzed several companies that possessed business in Ukraine, Russia and Eastern Europe, from the technology, banking and energy sectors.
Some scholars said that although investors do not have to worry too much about the direct impact of the Russia-Ukraine war on Hong Kong stocks at this stage, they should pay attention to the overall environmental indicators of the global economic situation. As Hong Kong is a key player in China-US trade, the attitude of the US sanctions against China is also the focus
Hong Kong will not face the direct impact of the Ukraine war but experts are concerned about the side effects to the Hong Kong stocks market, as well as the global economy including inflation.
The U.S. inflation rate was reported to climb at its highest rate since 1981, rising 8.5% over the year to the end of March as the war in Ukraine drove up energy costs for Americans, according to the statement of the U.S. labor department.
However, Alvin Cheung Chi-Wei, associate director at Prudential Brokerage Limited said the Russia-Ukraine war harmed the trade in the Hong Kong market since Hong Kong stays between the United States and China. China is afraid that Hong Kong will help with the sanctions from the United States. On the other hand, Hong Kong is also worried about being sanctioned by the United States.
In terms of finance and stock, the war has caused a strong shock to the global stock market as well as in Hong Kong. As the global epidemic eased last year, the global economy is expected to be positive, said Nie Zhenbang, an analyst at Huasheng Securities.
However, the emergence of the Russia-Ukraine war has caused many listed companies to perform worse than expected, and the market has been re-valued and listed. The performance of the company has slowed down the global economic development and has had a serious impact on the Hong Kong stock market and even the global stock market.
The slowdown in economic growth has given the opportunity to change the global consumption pattern, said Nie. He also added that some listed companies will also be affected even if they do not have trade relations with Russia and Ukraine, which will weaken the profit prospects of listed companies.
In terms of politics, Nie mentioned that western countries advocate sanctions against Russia, which have recently been announced. Eliminating Russia from SWIFT (Society for Global Banking and Financial Telecommunication) and boycotting the import of its oil and other commodities into Europe , which constitutes a major economy for Russia, even pushes up oil prices and affects the global economy.
The China Securities Regulatory Commission recently implemented the “Foreign Corporate Responsibility Act”, which affected many Chinese stocks listed in the United States, causing Hong Kong stock prices to continue to decline since the third quarter of last year, said Nie. China advocates not sanctioning Russia, deepening the political contradiction between China and the United States.
“ I believe it will affect the performance of many Hong Kong stocks and Chinese stocks, and indirectly deepen the downward trend of Hong Kong stocks.” said Nie.
“ I believe it will affect the performance of many Hong Kong stocks and Chinese stocks, and indirectly deepen the downward trend of Hong Kong stocks.” said Nie.
Based on Yahoo Finance’s Hang Seng Index rankings, we surveyed the top 30 companies for their business with Russia or Ukraine or eastern Europe. By reviewing the annual financial reports of these 30 companies* from 2017 to 2021, we found that most of them have explicitly reported on their operations in Russia or Europe from 2019 onwards, but none of them have indicated details of their operations in Ukraine in their annual reports.
Fewer companies have documented operations in Europe than those without in their annual report (see Graph 1).
Among the surveyed companies with strong business ties to Europe, we selected several representative companies from different industries (Alibaba and Xiaomi from the technology sector, ICBC and CITIC from the financial sector, CNOOC and CLP from the energy sector) to examine their relationship with European countries (some of them have their business in Russia or cooperate with local companies) from market share, employee distribution, supply chain and possible impact in the Russia-Ukraine war.
market share, employee distribution, supply chain and possible impact in the Russia-Ukraine war.
Here are the results in detail.
*please see the list of the 30 companies researched in the last page
Graph 1: The percentage of companies with and without record of business in Europe in annual reports from 2019-2021.
Alibaba Group launched AliExpress in 2010, with the matured market in East Europe, especially in Russia, which has been the biggest market of AliExpress since 2013.
The Compound Annual Growth Rate of e-commerce sales of the group was expected to be 14.4% in Russia, Compared to 12.6% in China and 7.1% in the United States, for the year from 2021 to 2026 (see Graph 2).
The market value share of Aliexpress Russia (Tmall) in the Russian internet retail market witnessed an increase from 2018 to 2022, which was anticipated from 1% to 11% of the total market ( see Graph 3).
Graph 2: Compound annual growth rate (CAGR) of Alibaba’s group’s e-commerce sales in leading markets from 2021 to 2026. Sources: Statista CAGR of Alibaba’s group’s e-commerce sales in leading markets 2021-2026
Alibaba’s Market value share of Russia internet retail market from 2018 to 2022. Sources: Market value share of Russia internet retail market from 2018 to 2023, by major company.
However, the Chinese e-commerce giant is now facing uncertainty as the companies or CEOs of its three partners in Russia have been hit with sanctions from the United States and some European countries after the breakout of war (see Graph 4).
Graph 4: Important event of Aliexpress’s Russia business operation (as of 2022 Mar).
Xiaomi Corporation, one of the Chinese tech-giants, produces and sells mobile phones, smartphone software, set-top boxes, and related accessories and markets its products worldwide.
Xiaomi took leadership of the Russian smartphone market for the first time in Q2 2021, with its brands holding more than one-third of the total market, according to International Data Corporation (IDC).
And the vendor’s flagship brand held 32.8% of the market, while its Pocophone brand held nearly 5% (see Graph 5), and the brand’s market share in Russia keeps increasing from 2017 to 2021 (see Graph 6).
Graph 6: The percentage of Xiaomi’s market share in Russia from 2017 to 2021. Sources: Statista Market share of leading mobile device vendors in Russia from 20102021.
Graph 5: The market share of Xiaomi’s vendor flagship and Pocophone brand in Russia. Sources: International Data Corporation: Xiaomi leads Russian Smartphone market for the first time in Q2 2021.
CITIC Limited operates in a range of business activities including financial services, resources and energy, manufacturing, real estate, infrastructure, engineering contracting, and other businesses in China and overseas.
CITIC Telecom, an integrated telecommunications service provider under CITIC Group, provides telecom services in the Asia Pacific including Internet Services, Mobile Services, Enterprise Services, Data Center Services and International Telephony Services.
Its geographical suppliers in European countries and others remained the lowest with an inclining trend in the past three years (see Graph 8). It also has branches in European countries, but the scale is relatively small (see Graph 7).
Graph 7: The number of employees from European countries and its percentage from 2017 to 2021. Sources: Annual report of CITIC telecom from
Graph 8: Number and percentage of suppliers from Europe engaged from 2019 to 2021. Sources: Annual report of CITIC telecom from 2017 to 2021.
“ICBC Bank” has been established as a wholly-owned Russian bank with foreign capital. The sole shareholder of the Bank is Industrial and Commercial Bank of China Limited (ICBC). The main types of banking transactions in the financial services market for both corporate and private clients.
We found that the total assets of the bank continued to grow from 2017 to 2020. However, net assets and net profit of the bank have repeatedly fallen and risen during the period (see Graph 9).
ICBC started to restrict financing for Russian commodities after the Russia-Ukraine war began, said Bloomberg news ( see graph 10).
Graph 9: Net asset and net profit of ICBC (JSC) in Moscow from 2017 to 2020.
Sources: Annual Report of ICBC Group from 2017 to 2021.
Graph 10: Important event of ICBC’s operation in Russia (as of 2022 Mar).
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CNOOC Limited operates exploration and production businesses. The Company explores, develops, produces, and sells crude oils, natural gas products, and other products. CNOOC also provides oils and natural gas products, marketing and trading services.
CNOOC has 70% of its business in China, no other region’s business counted more than 10% by itself. Their biggest partner is PetroChina (see Graph 12).
The Company owns a 10% interest in Arctic LNG 2 LLC, which is located in the Gydan Peninsula in the Arctic region of Russia. The project is the second oil and gas cooperation project between China and Russia in the Arctic Circle which covers the whole industry chain.
The net production of crude/ liquids/ natural gas from Europe is continuously declining from 2016 to 2020, and so is the percentage of the production from Europe in all branches.
The reserve of crude and liquids in Europe increased from 2016 to 2017; however, it kept declining from 2018 to 2020. The percentage increased between 2017
to 2020, and so is the percentage of the production from Europe in all branches.
The reserve of crude and liquids in Europe increased from 2016 to 2017; however, it kept declining from 2018 to 2020. The percentage increased between 2017 and 2018, but decreased in other years ( see Graph 11).
The company plans to exit Canada, UK, and US due to sanctions concerns, as reported by Reuters in April this year. However, the company said they will stick to the Arctic LNG 2 project, but continues to assess the risk, as reported by EnergyNews.
Graph 11: The percentage of production and reserves of crude/ liquids/ natural gas of the company from Europe 2016-2020. Sources: Annual report of CNOOC from 2017 to 2020.
Graph 12: CNOOC has 70% of its business in China.
Graph 13: Important events of CNOOC’s operation in Russia and other countries.
CLP Holdings Limited provides vertically-integrated electricity supply in Hong Kong, conducts energy generation and retailing in Australia, and owns power generation assets in China, India, South-east Asia, and Taiwan. The Company’s power sources include coal, gas and distribution services.
The percentage of long-term relationships with European financial institutes are stable in the last four years, and so is the number of suppliers in Europe (see Graph 14).
Graph 14: The percentage of longterm relationships in Europe and the number of suppliers in Europe from 2018 to 2021. Sources: Annual report of CLP holdings from 2018 to 2021.
9988.HK Alibaba Group Holding Limited 阿⾥巴巴－ＳＷ Technology 1810.HK Xiaomi Corporation ⼩米集團－Ｗ Technology 2269.HK WuXi Biologics (Cayman) Inc 藥明生物 Technology 2018.HK AAC Technologies Holdings Inc 瑞聲科技 Technology 3690.HK Meituan 美團點評 Technology 0883.HK CNOOC Limited 中國海洋石油有限公司 Energy 能源 0002.HK CLP Holdings Limited 中華電力 Energy 0386.HK China Petroleum & Chemical Corporation 中國石油化工 Energy 2020.HK ANTA Sports Products Limited 安踏 Consumer discretionary 非必需消費品 9618.HK JD.com, Inc 京東 Consumer discretionary 0027.HK Galaxy Entertainment Group Limited 銀河娛樂 Consumer discretionary 2331.HK Li Ning Company Limited 李寧 Consumer discretionary 1398.HK Industrial and Commercial Bank of China Limited 中國工商銀行 Financial services 2628.HK China Life Insurance Company Limited 中國人壽保險 Financial services 1044.HK Hengan International Group Company Limited 恆安國際 Hygiene products 0669.HK Techtronic Industries Company Limited 創科實業 Industrial products 1038.HK CK Infrastructure Holdings Limited 長江基建 Infrastructure 1093.HK CSPC Pharmaceutical Group Limited 石藥集團 Pharmaceutical 0267.HK CITIC Limited 中信股
We found that most of them have explicitly reported on their operations in Russia or Europe from 2019 onwards, but none of them have indicated details of their operations in Ukraine in their annual reports.
民的援助也來自於歐盟儲備。Tereza Freidingerová建議政府完成短期援助後，應針對長遠發
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