Hong Kong’s stock market was hammered by the US-China trade war, violent protests and the mainland’s economic slowdown. But it came roaring back, gaining 9.1 per cent in 2019 and keeping the crown as the world’s largest initial public offering market.
“It was a fruitful year amid uncertainty,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai. “A high single digit return for (the Hang Seng Index) is better than expected. Some bearish analysts expected the HSI might fall to 22,000 in 2019.”
The Hang Seng Index said goodbye to the roller-coaster year at 28,189.75 points, with half-day trading that saw a 0.5 per cent decline. It ended 2018 – a miserable year in which it lost 13.6 per cent – at 25,845.70 points.
Still, the Hang Seng’s yearly performance was trounced by that of the Shanghai Composite Index.
The Shanghai Composite Index finished 2019 with a yearly gain of 22 per cent. That followed a 24.6 per cent fall in 2018, with the main gauge closing at 2,493.90.
On its final trading day, the Shanghai benchmark rose 0.3 per cent to 3,050.
“Bold steps taken to drive market-based reforms have helped mainland investors regain confidence in the market,” said Ding Haifeng, a consultant with Shanghai-based financial advisory firm Integrity. “Now that the index trades above the 3,000-point level, it seems that investors are still bullish on the outlook.”
Worries about the US-China trade war and a slowing domestic economy weighed on investor sentiment on the mainland.
But an influx of fresh capital and the establishment of Nasdaq-style Star Market along with liberalisation moves by Chinese regulators shook off the gloomy sentiment surrounding the US$7.2 trillion Chinese stock market.
Meanwhile, Hong Kong saw its second-best month in December, with a rise of 7 per cent as the US and China marched toward agreement on a “phase one” trade deal that averted new tariffs on Chinese goods, among other things. Also, a huge election win by anti-government candidates on November 25 created a sense among investors that perhaps the worst of increasingly surreal violence might be over.
The best month of the year was January, when the Hang Seng rose 8.1 per cent.
The worst-performing month for the Hang Seng was May, when the US-China trade talks fell apart and the benchmark tumbled 9.4 per cent.
Protests, which began in June and turned violent at the start of July when protesters broke into the Legislative Council, contributed to monthly losses in November (2 per cent decline), August (7.4 per cent decline) and July (2.7 per cent decline).
“2019 saw emotion triumph over fundamentals,” said Brock Silvers, managing director at Adamas Asset Management.
“The biggest influences were the trade war and Hong Kong’s social unrest. Especially with the former, the market seemed to overreact at every step. When Liu He left a trade meeting and smiled, markets jumped. When Trump tweeted, markets quaked. And most of it had little to do with fundamentals,” Silvers said.
China’s economic slowdown also at times wore down at the Hang Seng Index, where mainland-listed stocks make up more than half of the market’s value.
“In 2020, the China slowdown should continue, the Hong Kong unrest seems set on a very negative trajectory, and the trade war could return with a vengeance if the ‘phase one’ deal doesn’t deal with its underlying causes,” said Silvers.
Health care stocks outperformed in Hong Kong, with the Hang Seng health care sub-index rising about 36 per cent. Sino Biopharmaceutical soared a jaw-dropping 111 per cent, while CSPC Pharmaceutical Group racked up a 64.4 per cent gain for the year.
The mega secondary listing of Alibaba Group Holding in November silenced Hong Kong sceptics. Alibaba raised HK$101.2 billion (US$12.9 billion). Since its initial public offering price of HK$176, the stock has risen nearly 18 per cent to HK$207.20.
The Alibaba listing was seen by many analysts as the start of more technology companies that went public in the US to consider a secondary listing in Hong Kong in 2020. (Alibaba owns the South China Morning Post.)
In 2019, there were 161 IPOs on the main board and GEM, raising a total of US$40.22 billion.
This year was the seventh time in 11 years that the Hong Kong main board ranked as the top of the IPO market worldwide, including in 2018.
On the mainland, the A-share market shot up from this year’s lowest close of 2,464.36 on January 3 to 3,270.80 on April 19 as Beijing’s monetary easing shored up investors’ confidence in the market despite lingering concerns about an escalation of the US-China trade war.
But the key indicator since retreated after Beijing tightened monetary policies and fluctuated in volatile trading.
Global index compiler MSCI lifted the weighting of China’s A shares in its benchmark gauges three times in 2019, directing an influx of foreign capital into the yuan-denominated share market.
China International Capital Corporation, one of the mainland’s leading investment banks, predicted that the last round of adjustment in MSCI gauges would result in overall inflows of up to US$40 billion from passive and active funds.
The Shanghai Stock Exchange launched the Technology Innovation board, the Star Market, on July 22, which for the first time adopted a registration-based initial public offering mechanism and allowed unprofitable firms to raise funds from the mainland’s equities market.
Consumer stocks were the top gainers on the mainland in 2019, with the CSI consumer index advancing 79 per cent.
Additional reporting by Enoch Yiu
More from South China Morning Post:
- Chinese liquor and 5G-related electronics stocks have been big winners in 2019 – a wild year of ‘expect the unexpected’
- Hong Kong’s stock market has always bounced back strongly after big protests in the past. Will it this time?