After a year framed by local unrest and a US-China trade war, investors in Hong Kong’s financial markets are more sanguine entering this year.
The territory’s Hang Seng Index last month rallied 7.1 percent, among the world’s top major benchmarks.
Elevated local borrowing costs have put the Hong Kong dollar on pace for its best month since 2003, even as some analysts doubt that the strength will stick.
Worries are still hanging over the territory after its economy plunged into recession and as protests continue following landslide victories for pro-democracy candidates in November.
However, for Hong Kong markets, helping sentiment last month was an initial trade agreement between Washington and Beijing that helped power a return to risk assets globally and sent the S&P 500 to new all-time highs in the US.
The Hang Seng yesterday lost 0.46 percent, or 129.64 points, to end the session at 28,189.75, with volume that was 21 percent less than the 30-day average. The index rose 2,344 points, or 9 percent, for the whole of last year.
“It has been a worse-than-expected year for Hong Kong’s financial markets due to the political events,” Springwaters Financial Group Co (泓瑞源金融證券) Hong Kong-based strategist Sam Chi Yung (岑智勇) said. “Since the city’s tension has eased recently and more trade deals are expected to be signed next year, the market is set for a good start in 2020.”
Sam is expecting a “good rebound” for the Hang Seng in the first half.
Despite last month’s rally, the Hong Kong benchmark last year trailed most major stock indices worldwide.
After the Hang Seng’s strong start last year, occurring as mainland equities surged, markets were hit by inflamed trade tensions, an extended drop in the yuan and worsening economic data in China.
Chinese firms account for more than half the market value of Hang Seng components.
While there was anticipation that the year-end rally for equities can persist, some market watchers believe the Hong Kong dollar’s 0.5 percent gain for last month will prove short-lived.
“The Hong Kong dollar should weaken past the year-end, as local interest rates should soften,” Bloomberg Intelligence Asia foreign exchange and rates strategist Stephen Chiu (趙志軒) said.
“A more sustained retreat in Hong Kong rates and the city’s currency could come after” the Lunar New Year holiday late this month, when there is typically a seasonal increase for cash, he added.
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