Hong Kong Equity Investors Get That Sinking Feeling, Again

  • Hang Seng Index has fallen almost 10% from 2016 high
  • Rising money-market rates, slumping yuan curb investor demand

Hong Kong stocks are heading back into the doldrums.

For the first time in four months, the city’s benchmark equities gauge has fallen into the red for the year. The Hang Seng Index’s losses since its Sept. 9 high are approaching 10 percent, while the gauge is close to breaking below the closely-watched 200-day moving average. A separate momentum indicator has dropped to the lowest level since January’s rout.

The $4 trillion stock market, the world’s fourth largest, is losing ground as property developers tumble on rising borrowing costs, inflows from mainland investors dry up and a slumping yuan undermines investor confidence in Chinese assets. The retreat is also a blow to bulls who saw the previous quarter’s jump by the Hang Seng Index -- its biggest in seven years -- as the start of an extended rally after months of global underperformance.

As a world financial center with a currency pegged to the greenback and a stock index weighed down by Chinese state-owned companies, Hong Kong is being squeezed between resurgent U.S. growth and worries over the health of the mainland economy. While the Hang Seng Index increasingly looks like a bargain compared with its peers, a widening valuation gap hasn’t been a reliable trigger for gains in the past.

The benchmark gauge dropped 0.9 percent on Monday to its lowest level since Aug. 4.

Hong Kong stock investors will be feeling a sense of deja vu. In the past few years, the city’s shares have gone through bouts of euphoria followed by sharp slumps, making buying and holding a typically unsuccessful strategy. After jumping 12 percent last quarter, the Hang Seng Index has retreated 6.3 percent since the end of September -- the world’s worst performance outside of New Zealand, Ghana and the Philippines.

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