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The performance of stock markets globally has been mixed in 2022 due to numerous economic shocks. Many of us may have already felt the effects of the unprecedented pace of interest rate hikes, whether it’s a higher borrowing cost or better interest returns. This is being carried out to combat persistently high inflation. Geopolitical tensions also continue to simmer with the prolonged Russia-Ukraine war.
Adding to the uncertainties, tech behemoths from Facebook and Amazon to Alibaba and Tencent, and even Singapore’s Shopee and Carousell, have aggressively begun cutting headcount this year. The reasons cited are a combination of slower-than-expected growth and preserving cash flow.
All this has led to heightened volatility and weak investor sentiment. Moreover, the higher benchmark interest rates have also attracted investors to lower-risk fixed-income products, such as money market funds and government bonds, over equities.
Despite the challenging landscape today, investors should not entirely shun equities. For example, the Hong Kong stock market might regain some of its sheen – and here are 5 reasons why it could be worth a look for investors in 2023.
#1 China Is Starting To Relax Certain COVID-19 Measures
China has taken a big step towards relaxing its punishing “zero-COVID” posture. This is a welcome reprieve not only for those in China but all around the world due to the important role the Chinese economy plays globally.
China will axe quarantine requirements for inbound travellers from 8 January. Furthermore, those who test positive for COVID-19 can isolate at home instead of at a central facility. Close contacts may also choose to quarantine at home, isolating at a central facility.
China has also ramped up its vaccination drive, which has been a precursor for many other countries to loosen border restrictions. Its stance on mRNA vaccines has also softened.
As a result of this gradual re-opening, its economy may enjoy a rebound. Hong Kong, often viewed as a gateway to China, may also ride this upswing. Many Chinese stocks are also listed in Hong Kong in the first place.
Besides this, Hong Kong itself has also moved to reduce travel restrictions and contact tracing. This may provide a further boost to its economy and stock market.
#2 China Is Easing Off Its Tech Regulation Crackdown
After enjoying years of unbridled growth, there was a crackdown on the Chinese technology sector from late 2020. During this time, some of the most prominent Chinese tech companies, like Alibaba and Tencent, became the subject of stricter regulatory compliance.
Key risks were flagged over fintech development in China, resulting in the abrupt suspension of Ant Group’s record IPO in Shanghai at the last hour. Separately, China also reined in anti-competitive practices by giant e-commerce platforms, particularly Alibaba and Meituan, which were hit with record fines of 18 billion yuan ($3.5 billion) and 3.4 billion yuan ($670 million) respectively.
Domestic data security became a major concern as well. Chinese ride-hailing giant Didi was delisted from the New York Stock Exchange (NYSE) barely a year after being listed. Tencent’s Wechat was also rebuked as part of a list of apps that illegally transferred user data.
In early 2022, the Chinese authorities started easing off on regulating the technology sector. Since then, several policies have also been put in place to ensure the sustainable growth of the tech sector post-regulation.
Ideally, this will allay investors’ concerns and revive investment flows back into the stock market.
#3 The Hang Seng Index Soared Over 30% Since November 2022
As recovery in the Chinese economy gathers momentum, so will investors’ confidence in the stock market. As the gateway to China – Hong Kong’s stock market may potentially reflect the uplift.
In fact, since the start of November, a marked improvement has been seen in Hong Kong’s Hang Seng Index (HSI). From November to mid-December 2022, the HSI gained nearly 32%.
Source: Société Générale
(Any past performance is not indicative of future performance)
Even at current levels, there is still a long way to go for the index to recover to its previous 2021 highs – above the 30,000-point mark.
Source: Société Générale
(Any past performance is not indicative of future performance)
#4 China Tech Giants Have Risen 45% – Leading The Broader Market
We can tell that Chinese tech companies have been driving the tailwinds in China’s economic recovery by looking at the Hang Seng Tech Index (HSTECH).
The HSTECH has increased by 45% since the start of November compared to the HSI, which has only risen by 32%. Unsurprisingly, the strong showing by the HSTECH was a result of tech giants such as Tencent, Alibaba, and Meituan gaining 50%, 37%, and 40%, respectively, over the period.
Source: Société Générale
(Any past performance is not indicative of future performance)
Read Also: Tencent & Alibaba Earnings Result: How The Two Biggest Chinese Tech Companies Performed In 2022?
#5 Volatility Is Going To Remain High – But That May Not A Bad Thing
Many macroeconomic factors, such as high inflation, rising interest rates, geopolitical tensions, and supply chain disruptions, are viewed as culprits of the market volatility experienced in 2022.
Even as the Chinese stock market is on the rise, volatility may continue. There’s no reason to think inflation has peaked or that the U.S. Federal Reserve is anywhere close to reversing its interest rate hikes. In fact, many experts see the high interest rate environment as the catalyst for a potential recession in 2023.
Arguably the riskiest prospect is for the war in Russia-Ukraine to escalate. Sanctions and trade wars with major trading partners could jam the brakes on any growth story.
Again, all this uncertainty may contribute to a choppier stock market.
Capturing Opportunities In The Hong Kong Stock Market
As investors, we can gain exposure to the Hong Kong stock market by investing in Hong Kong-listed stocks or exchange traded funds (ETFs). Majority of brokerages in Singapore offer the Hong Kong market to local investors.
Alternatively, investors can also gain exposure to Hong Kong stocks through Daily Leverage Certificates, or DLCs. As DLCs are listed on the Singapore Exchange (SGX) and denominated in Singapore dollars (SGD), they can also be a convenient way for Singapore investors to gain exposure to major Chinese counters listed on HKEX. We do not have to worry about foreign exchange conversions.
When investing in DLCs, we also do not need to fork out the entire lump sum for the exposure we want. This is because we can gain up to 7x leveraged exposure when investing in index DLCs and up to 5x leveraged exposure when investing in single stock DLCs. This frees up our investment capital to capture more opportunities in the stock market.
In our interview with Robin Ho – one of Singapore’s largest traders by volume – he mentioned that DLCs are most useful for magnifying our exposure to foreign-listed stocks on the SGX itself.
DLCs allow us to potentially benefit from both long and short positions. This means we can take advantage of volatility to profit, regardless of whether prices go up or down, in the short term With this flexibility, DLCs can also be used to hedge our longer-term position, especially during times when volatility is heightened.
It is important to note that DLCs are designed for investors with a short-term view of the market and not meant to be held for a long period of time. There is also an in-built intraday reset mechanism (“Airbag”) that reduces the actual exposure of such DLC to changes in the underlying asset in the case of a significant adverse movement in the underlying index or stock during the day. It should also be noted that the maximum loss in investing in DLCs is capped at the investment amount you put in.
We can learn more about DLCs and start our trading journey by going to Société Générale’s DLC website. There, we can preview a list of over 200 DLCs, as well as learn more about the risks, try out a simulator tool, understand the costs and fees of trading DLCs and more.
Disclaimer
This advertisement has not been reviewed by the Monetary Authority of Singapore.
The views expressed under this article represent the personal and independent views of the author and do not constitute investment advice. The content of this article does not form part of any offer or invitation to buy or sell any daily leverage certificates (the “DLCs”), and nothing herein should be considered as financial advice or recommendation. The price may rise and fall in value rapidly and holders may lose all of their investment. Any past performance is not indicative of future performance. Investments in DLCs carry significant risks, please see dlc.socgen.com for further information and relevant risks. The DLCs are for specified investment products (SIP) qualified investors only.
The post 5 Reasons To Look At The Hong Kong Stock Market In 2023 (And How Singapore Investors Can Gain Exposure To Hong Kong Stocks) appeared first on DollarsAndSense.sg.
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