A screen displays stock figures outside the Exchange Square complex, which houses the Hong Kong stock exchange, in Hong Kong, on Sept 16, 2019. (PAUL YEUNG / BLOOMBERG)

Two of the most straightforward ways to bet on the future of Hong Kong’s stock market are telling opposing stories.

A flood of listings from Chinese mainland technology firms, prospects for a jump in derivatives trading and an inflow of cash from mainland-based investors have offset concerns about Hong Kong’s status as a financial hub. 

Take the Hang Seng Index, the city’s 50-year-old benchmark that’s down 10 percent for the year. On a price-to-earnings basis it’s near the cheapest on record relative to MSCI Inc’s index of global shares. Last month it clocked up the worst quarterly drop versus the S&P 500 Index since the Asian financial crisis in 1998. Three-fifths of its members have lost 16 percent or more this year.

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The flipside is Hong Kong Exchanges & Clearing Ltd, the firm that actually operates the stock exchange. Worth about US$61 billion, it’s the biggest of the world’s 24 listed bourses, eclipsing Chicago’s CME Group Inc as of Thursday’s local market close. 

It’s the priciest exchange, trading at about 40 times price-to-earnings, and boasts a 66 percent premium to peers. The stock, which closed at a record earlier this week, is up nearly 50 percent in 2020.

It’s a rare divergence in the world’s fourth-largest equity market, which is becoming increasingly polarized by new economy stocks versus old.

A flood of listings from Chinese mainland technology firms, prospects for a jump in derivatives trading and an inflow of cash from mainland-based investors have offset concerns about Hong Kong’s status as a financial hub. On the other hand, local companies exposed to an economy battered by months of anti-government protests and the pandemic have been hit hard.

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“We see a bull market and a bear market co-exist in Hong Kong,” said Alex Wong, asset management director of Ample Capital Ltd. “The Hang Seng Index is lagging behind because the weighting in new economy shares is lower than other markets.”

A relentless run of bad news keeps grinding down Hong Kong’s stock bulls. A developing third wave of the virus is adding to the city’s vulnerability. The MSCI Hong Kong index of stocks exposed to the local economy is down 11 percent this year.

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But while it’s seen as a long road back for Hong Kong’s companies, the special administrative region’s status as a financial hub is being supported by share sales from mainland giants. Firms including NetEase Inc, JD.com Inc and also billionaire Jack Ma’s Ant Group have listed, or plan to, at a time when tensions between Washington and Beijing have threatened to curtail Chinese companies’ access to US capital markets. Those tensions escalated Wednesday after China said the US forced the closure of its Houston consulate.

Supported by strong mainland inflows through stock connect links, mainland technology shares have emerged as big winners in the beaten down market. Tencent Holdings Ltd has surged 48 percent this year, while Meituan Dianping is up 95 percent.

In an effort to reflect their growing dominance in the market, the compiler of the Hang Seng Index is scrapping a weighting limit for dual-class shares on some of its gauges, in a move seen as paving the way for more tech stocks to eventually join the benchmark. It is also launching a new tech-focused index next week.

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“These newly listed mainland stocks will become increasingly influential in the index because of their huge market capitalizations,” said Paul Pong, managing director at Pegasus Fund Managers Ltd. “They will gradually overtake local shares which are smaller in size.”