On reading his own obituary in 1897, Mark Twain apparently remarked: “The report of my death was an exaggeration”. The same can now be said about Hong Kong. If I had a dollar for every time I’ve heard or read that Hong Kong is finished, I’d have accumulated a tidy pot of money to invest. And where would I invest it? In the Hong Kong stock market, of course!
The latest pronouncement about Hong Kong’s demise comes from the American economist, Stephen Roach, writing in the Financial Times. “Hong Kong is now over”, he laments. “A city I once called home and have cherished as a bastion of dynamism has had the world’s worst-performing major stock market over the past quarter of a century. Since the handover to China in 1997, the Hang Seng Index has been basically flat, up only about 5 per cent.”
On reading this, three things immediately spring to mind. First, the statistics need questioning. Second, what is described sounds more like a potential buying opportunity than a cause for concern. Third, an underperforming stock market doesn’t automatically equate with the death of a country or city.
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It’s well-known that the selective use of statistics can prove just about anything. So let’s start with some fact-checking. In 2018 the Hang Seng Index reached a high of 33,154, up from a low of 6,660 a quarter of a century ago in 1998. So anyone who bought and sold shares at those figures would have made a 500 percent profit in that 20-year period. That doesn’t sound like a flat stock market to me. The subsequent drop in the index after 2018 was triggered by a quadruple whammy. First, there were the 2019-20 riots that brought Hong Kong to a standstill; immediately followed by persistently negative coverage in the Western media claiming that Hong Kong’s high degree of autonomy had been eroded; then followed by the pandemic and the city’s “zero-COVID” strategy which battered the economy for two years; and now an economic slowdown in the Chinese mainland. Inevitably, this unique combination of negative factors has had a severely detrimental effect on the Hong Kong stock market, with the Hang Seng Index dropping from over 33,000 in 2018 to its current level of just 16,600. Given the extraordinary circumstances, no one should be surprised by this. In fact, what is newsworthy is that despite the “perfect storm” combination of negatives weighing on the market, the Hang Seng Index is still 250 percent higher than the low point of 1998. This is not exactly flatlining and far from sounding the death-knell of Hong Kong’s economy, it speaks very much of its resilience.
This brings me to the second issue with Roach’s judgment on Hong Kong. One man’s fear about a poorly performing stock market is another man’s incentive to spot a buying opportunity. All stock markets are driven by the competing emotions of greed and fear. Understandably, over the past few years of turmoil, fear has been in the ascendancy. However, as stability returns, this will lessen and opportunities to make profitable investments will return. If the Hang Seng Index really is lagging behind other world stock markets, it’s not rocket science to see that the investment risk could therefore be lower and the profit opportunity higher. Far from using the “perfect storm” negatives as a stick with which to beat Hong Kong, they should be acknowledged as extraordinary but short-term factors behind the drop in the Hang Seng Index. As the negatives begin to recede and risk appetite returns, investors will inevitably see the current low stock valuations as buying opportunities, the greed-fear index will tilt, and stories of market recovery will once again be in the news headlines.
It’s clear from all of this that Western reports of the death of Hong Kong are indeed greatly exaggerated. We should certainly not let such accounts undermine our confidence in Hong Kong. Instead, we should focus on Hong Kong’s positive economic fundamentals
My third issue with Roach’s analysis is that he seems to be equating a drop in stock market values with a collapse of both the real economy and the city itself. Yet if economic history teaches us anything, it is that this is patently untrue. The real economy and stock market valuations don’t always synchronize. Markets are all about the confidence of potential investors, often based on media reports and speculation. Hence their volatility. The real economy is more rooted in fundamentals. The United States didn’t collapse because of the Wall Street Crash in 1929. Sure there were difficult times ahead with the Great Depression of the 1930s, but no one declared that “The US is now over”. As then-US president Franklin D Roosevelt put it so succinctly, people in America had “nothing to fear but fear itself”. The US economy was revitalized by his New Deal policies and almost a century later still remains the world’s biggest economy. It’s a similar story with Japan, where after 34 years of stagnation, the benchmark Nikkei 225 Index of the country’s largest companies has only just surpassed the previous record set in 1989. Analysts believe that this milestone may finally have brought to an end Japan’s three decades of falling prices and low growth. Whatever the truth of this, what is certain is that throughout those three decades Japan remained one of the world’s richest countries. During the 34 years of poor stock market performance, no one declared that “Japan is now over”. Roach’s declaration in the Financial Times that “Hong Kong is now over” is a contradiction of the experiences of the US, Japan and any other country that has witnessed stock market turbulence.
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It’s clear from all of this that Western reports of the death of Hong Kong are indeed greatly exaggerated. We should certainly not let such accounts undermine our confidence in Hong Kong. Instead, we should focus on Hong Kong’s positive economic fundamentals. At the macro level, it remains the primary gateway to the Chinese mainland and a hub for global and regional business. At the micro level, in addition to its low taxation environment, respected legal system and world-class infrastructure, its greatest strength remains what it always has been — the extraordinary dynamism, work ethic and creativity of its people. This is what made Hong Kong a success story in the past and will do so again in the future.
The author is a British historian and former principal of Sha Tin College, an international secondary school in Hong Kong.
The views do not necessarily reflect those of China Daily.
