Investors are keeping a "cautious" eye on Hong Kong's financial markets heading into 2020 as the city's economy takes a battering from the US-China trade war and months of civil unrest.
Benjamin Jones, senior multi-asset strategist at State Street in London, said stocks listed in the city are probably "destined for some volatility" in the coming months.
"It wouldn't be a market that I would be jumping into at the moment. Some people say, yes, it is cheap now. It has fallen an awful long way. Is this a buying opportunity? My view is no, because it's nigh on impossible to say what is going to happen on the political side right now. This has gone on far longer than many people had feared or expected."
Anti-government protests since early June have turned into fiery battles with police in university campuses, dragging down the stock market and the economy. The Hang Seng Index's 2.5 per cent gain this year has trailed a 10 per cent to 29 per cent rally in major US, UK and mainland China bourses.
The city's biggest stocks have cheapened with investors willing to pay 9.9 times for their earnings in 2020, and 9.2 times for 2021, according to Bloomberg data. The price-earnings multiple has dropped from 13.7 times in 2017 to 11.2 times this year.
The economic effects may be spreading to other industries as more listed companies, ranging from newspaper publishers to Maserati importers, have warned the protests weighed on their bottom lines in the most recent quarter.
The protests began in June over a controversial extradition bill that would have made it easier to send criminal suspects to China, but have evolved into a broader movement about issues ranging from income inequality to Beijing's influence over city affairs.
Andrew Swan, head of global emerging markets equities at BlackRock, said the world's biggest asset manager remains "fairly cautious" about locally based listed companies in Hong Kong until they have a clear vision of how the situation will play out.
"It's a very difficult environment and, at this point, it's difficult to see what the resolution is," Swan said.
On Thursday, US President Donald Trump signed legislation into law that would potentially subject Hong Kong to diplomatic and economic sanctions if the city's autonomy from mainland China is undermined. Beijing has warned the US to avoid interfering in its internal affairs, raising the spectre of further escalation of the trade dispute.
The move by the Trump administration came just days after pan-democrats won by a landslide in Hong Kong's district council elections in a blow to the city's pro-establishment camp. A period of extended calm has descended over the city since the results were announced.
As of Wednesday's close , the Hang Seng Index was up 1.3 per cent from November 22, the last trading day before the weekend elections.
The city's stock exchange also received a shot in the arm this week as Alibaba Group Holding's secondary listing began trading in Hong Kong and its shares were fast-tracked to join the benchmark Hang Sang Composite Index next month. The biggest listing globally this year, Alibaba's shares closed Wednesday at HK$193.20 in Hong Kong , up 9.8 per cent from its offering price.
"Entering into a period of stability would be a step in the right direction," said Tara Joseph, the president of the American Chamber of Commerce in Hong Kong. "However, it will take months to restore confidence in many aspects of the economy. The city's global reputation has been tarnished and we need to actively show that change is afoot to restore peace, security and a solution to the ills affecting society."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.