Hong Kong Hang Seng Index declining state, reasons and its effects in Q2

Business | 27 Mar 2020

On Friday, the HongKong Hang Seng index slid into a bear market as share prices plunged 7.4%, which dragged the benchmark HIS by over 20% compared to its January highs. The Hang Seng Index managed to record its highest year to date points of 29,174, on January 20.

However, when the market opened, the index dipped below 23,339.94 points, which serves as the bear market barrier amid a global meltdown that has been triggered by the spread of the coronavirus.

Asian Market Seesaw

As of Tuesday morning, stocks in Asia seesawed after shares on Wall Street plunged to their biggest day drop in over three decades overnight. Also, the Philippines has temporarily shut its markets. Taking a look at the region’s major markets, the losses were led by South Korea’s Kospi, which declined by 2.2%.

While stocks in mainland china appear to have recovered a bit but are still trading lower than usual, the Shenzhen composite shed 0.908% while the Shanghai Composite slipped by 0.65%.

Hong Kong’s Hang Seng Index closed Monday 4% down at 23,063. At one point, it traded below 23,000 at 22,842, which was its sixth close with losses in the past seven sessions.

Japan’s Nikkei 225 slipped by 0.46% after it had managed to jump by more than 2%, and the Topix index advanced by 0.37%. However, stocks in Australia saw more gains. The S&P/ASX 200 was up 3.27% after it fell by almost 10% on Monday.

With the new pandemic showing no signs of relenting, governments around the globe are taking measures to boost their economies. Minutes released on Tuesday by the Reserve Bank of Australia (RBA) after a meeting in early March indicate that members observed the coronavirus would cause major disruption on all economic activities around the world. Therefore, the RBA was cutting its cash rate by 25 basis points as of March to 0.5%, which serves as a new record low.

Meanwhile, the Philippines has halted all trading on its stock exchange for now. In a statement made on its website, the Philippine stock exchange noted that trading was suspended to ensure the safety of traders and its employees in the light of growing cases of the coronavirus. On Monday, the PSE Composite Index was down by almost 8%.

What Is Causing The Markets To Bleed?

 

The obvious cause is the coronavirus pandemic, which has seen many economic activities suspended, creating panic as governments around the world frantically trying to combat the disease.

Also, some experts believe it has something to do with the Fed’s unexpected rate cut coupled with the dismal economic data from China. Both factors have heightened worry over a global recession.

Damage to the Chinese economy was highlighted by data which showed industrial production, retail sales, and asset investment all declined between January and February far more than analyst had expected.

The Dow Jones Industrial Average was also down on Monday as dismal economic data from China added to rising concerns of a global recession due to the coronavirus.  This has forced the US Federal Reserve to make its second emergency rate cut in just two weeks.

On Monday, several Asian central banks followed suit announcing measures to combat the impact of the new virus.

According to Timothy Moe, co-head of Asia macro research at Goldman Sachs, “the problem is that we have an uncertainty that the market is finding it hard to parameterize. The economic impact of this viral outbreak is still hard to fully determine, and the numbers keep moving around a lot. I think as long as there is uncertainty about ... how to, you know, price and evaluate … the economic effect, the market is likely to remain in … quite a jittery mode.”

What Does This Mean For Hang Seng Index And Other Markets In Q2?

It's difficult to accurately say what the impact of the pandemic will be for the global markets in the second quarter, however, if a containment plan can be found, then we should see the markets begin to recover.

So far, there are positive developments, especially in China, where the majority of the coronavirus cases are based. Thanks to subsiding cases of the virus, services are slowly resuming to normal, and many factories that had shutdown are reopening.

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