CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.00% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The Hong Kong stock market saw a major turnaround through 2024. This is because the Hong Kong indices broke a four-year losing streak. Rising trading volumes and strong momentum led these indices to set new records during the year. This has garnered trader attention worldwide and put trading the Hong Kong markets on their agenda. If you to wish to include these stock indices in your trading strategy, you first need to understand what moves them.
The Hang Seng Index (HSI) is a key indicator of the Chinese and Hong Kong economies. Hong Kong connects China’s otherwise conservative markets to the world, making the HSI a key indicator of the economic health of the world’s second-largest economy. It is also considered a benchmark for the Asian markets.
The Hang Seng 50 (HS50) or Hong Kong 50 (HK50) is a market capitalisation-based weighted index. It tracks the performance of the top 50 stocks from Hong Kong and mainland China. Trading the HK50 via CFDs is one of the most popular techniques to gain exposure to the Hang Seng Index (HSI). CFDs provide traders with the opportunity to take advantage of uptrends and downtrends in the markets. They can be traded on margin, which amplifies your purchasing power. However, you must employ strong risk management measures since greater purchasing power translates into higher potential gains and losses.
The Chinese government’s attempts to “vigorously boost consumption, improve investment efficiency, and comprehensively expand domestic demand,” indicate its determination to recover from economic stagnation. With multiple economic stimuli and record-breaking performance, indices on the Hong Kong Stock Exchange have made their way into portfolios worldwide.
By December 16, 2024, the HSI has risen nearly 18% year-to-date, despite staying volatile throughout the year. The gains of HSI eclipsed those of the Dow Jones Industrial Average Index (DJIA), one of the world’s most-followed indices. The DJIA, which indicates the health of the US economy, had risen 16.21% in the same period.
Did you know that the US and mainland China account for about 70% of the fluctuations in Hong Kong’s economy? This is because the SAR’s (special administrative region) currency, the Hong Kong dollar, is pegged to the US dollar in a tight range of 7.75-7.85 per USD. A major part of Hong Kong’s foreign direct investments, export demand and tourist income come from mainland China. Therefore, economic data from the US and mainland China deeply impacts the Hang Seng indices, including the HK50.
Although interest rates in Hong Kong are controlled by the Hong Kong Monetary Authority (HKMA), interest rates of mainland China significantly impact the HK50. This is because the HKMA follows the Fed’s monetary policies to maintain the currency peg. A drop in interest rates indicates lower borrowing costs, which means greater business spending.
A drop in the US CPI in July 2024 bolstered investor optimism regarding an interest rate cut by the Fed and the HKMA, which lifted the Hang Seng index by 2.6%. And true to its nature, the HKMA followed the Fed’s move in September and lowered interest rates by 50 basis points. For a market influenced by real-estate prices, such as China, lower interest rates translate into higher property investments, which supports investor sentiment.
Lower jobless claims in the US highlight stability in the job market, which indicates potential economic growth. Strength in the US job market boosts investor sentiment, which lifts the Hang Seng Index. For instance, the 233K increase in jobless claims in the US in the third week of August 2024 came well below the market consensus of 240K. The figure was also lower than the previous week’s increase of 250k. Following the report, the Hang Seng index added gains, along with many other Asian indices.
The Chinese economy is heavily dependent on consumer spending, which also impacts the Hang Seng indices.
In November 2024, retail sales rose 3% year-on-year, much lower than the 4.8% uptick in October 2024. At the same time, industrial production increased marginally from 5.3% y-o-y in October to 5.4% y-o-y in November. This underlined weak demand in the retail sector, and the Hang Seng indices, including the HK50, pared their gains by mid-December 2024.
Due to Hong Kong’s strong link with the Chinese economy, the Red Dragon’s economic growth significantly impacts the HK50.
The HSI had risen 3.55%, hitting a new 18-month high in September, as the Chinese authorities boosted investor confidence with indications of a fresh stimulus in September 2024. However, the stimulus details disappointed investors. The decline in trader sentiment weighed on the index, which lost its gains and plunged 9.4%, the highest loss in 2024.
However, renewed hopes of economic stimulus supported the HK50, while expectations of accelerated GDP growth through 2025 lifted the markets. This was evident on December 9, 2024, after Chinese policymakers shed light on their 2025 plans. A report highlighted that the government plans to adopt proactive fiscal measures and a looser monetary policy to boost domestic consumption. The Hong Kong 50 added 111 points after the announcement.
Disclaimer:
All data, information and materials are published and provided “as is” solely for informational purposes only, and is not intended nor should be considered, in any way, as investment advice, recommendations, and/or suggestions for performing any actions with financial instruments. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation or needs, and hence does not constitute as an advice or a recommendation with respect to any investment product. All investors should seek advice from certified financial advisors based on their unique situation before making any investment decisions in accordance to their personal risk appetite. Blackwell Global endeavours to ensure that the information provided is complete and correct, but make no representation as to the actuality, accuracy or completeness of the information. Information, data and opinions may change without notice and Blackwell Global is not obliged to update on the changes. The opinions and views expressed are solely those of the authors and analysts and do not necessarily represent that of Blackwell Global or its management, shareholders, and affiliates. Any projections or views of the market provided may not prove to be accurate. Past performance is not necessarily an indicative of future performance. Blackwell Global assumes no liability for any loss arising directly or indirectly from use of or reliance on such information here in contained. Reproduction of this information, in whole or in part, is not permitted.
