- Hang Seng China index beating all major gauges since mid May
- President could endorse Hong Kong in a speech, professor says
By Sofia Horta e Costa and Kari Soo Lindberg June 10, 2022
Hong Kong’s stocks are already rebounding at the fastest pace in the world, and a possible visit by Chinese President Xi Jinping in a few weeks may provide even more buying momentum.
Signs are growing that Xi will join a July 1 ceremony to swear in new leader John Lee as well as celebrate 25 years of Chinese rule following the handover from Britain in 1997. The South China Morning Post reported this week that Hong Kong is preparing to isolate some 1,000 people involved in the city’s handover anniversary in anticipation of a Xi’s arrival, including Lee and current leader Carrie Lam.
An upbeat mood in financial markets is key for the troubled financial hub, where more than half of individuals say they own stocks — one of the highest proportions globally. The appearance of investor optimism also matters for Beijing, which tends to lend support to markets around key anniversaries or high-profile events in China.
The Hang Seng China Enterprises Index has gained 15% since a mid-May low, outperforming every major benchmark in the world. It’s beating MSCI Inc.’s global gauge by about 9 percentage points. While the end of Shanghai’s strictest lockdown and a better outlook for the heavyweight tech industry have contributed to the gains, they’ve also coincided with $4.7 billion worth of inflows from the mainland.
“Everything seems to be getting just that little bit better in Hong Kong ahead of July 1,” said Samuel Tse, an economist at DBS Bank Ltd. in Hong Kong. “People are going out more, spending more, and generally have a more positive attitude toward the economy and markets. Government policies in Hong Kong and mainland China have helped improve the mood.”
China hasn’t confirmed that Xi will visit Hong Kong, but past leaders have tended to make the trip every fifth year since the handover anniversary to swear in new leaders. It would be Xi’s first visit since 2017, when he warned pro-democracy activists to avoid crossing China’s “red line.” Sometimes-violent street protests erupted two years later that paralyzed the city for months, prompting China to impose a sweeping national security law used to put key activists in jail.
The protests followed by the pandemic halted the daily influx of mostly Chinese shoppers, hurting retail sales and small businesses, while Beijing’s crackdown on dissent and strict Covid Zero measures prompted an exodus of residents. In May, the government cut its 2022 growth forecast to a range of just 1% to 2%, compared with a 6.3% expansion last year.
Hong Kong is tolerating hundreds of local daily Covid infections per day, showing a clear divergence with the mainland. Still, the city remains unable to eliminate the seven-day mandatory hotel quarantine that has cut down business travel and prompted companies to shift workers elsewhere in Asia.
“Increasing signs that Xi may come on July 1 is one part of the reason markets have been doing well,” said Dongshu Liu, assistant professor specializing in Chinese politics at the City University of Hong Kong. “If Xi comes and makes some speech, unless he says something very clearly about national security and Zero Covid, it will indicate that the central government still supports Hong Kong.”