Hong Kong stocks fall into the bear market

Hong Kong is now caught in an exodus from emerging markets, triggered by currency crises in Latin America and Turkey. Photo: AFP

Hong Kong: A defeat in the technology stocks, the contagion of the emerging markets, the weakness of the currencies, a threatened economy. Welcome to Hong Kong, where almost all the problems affecting global equity investors have found their place.

The 0.7% drop in the Hang Seng Index Tuesday tipped into a bear market, extending its loss from a January high to over 20%. Already shocked by internet sales and technology companies, as well as concerns about the slowdown in Chinese growth, Hong Kong is now caught in an exodus from emerging markets, triggered by currency crises in Latin America and Turkey. The MSCI Emerging Markets index is down 21% from January 26th.

Traders anticipate that more funds will be lost on funds following the MSCI EM Index around September 21, when the options and the tonnage futures contracts expire. This tends to increase the volume as global fund managers, who use these derivatives to hedge against risk or bet on a large basket of stocks, choose to change or defend their positions before the next quarter. Listed companies in Hong Kong account for 23% of the emerging markets benchmark.

"These markets are hard hit by the flow, and I would not be surprised to see more changes around expiration in September," said Mark Tinker, director of Framlington Equities Asia at AXA Investment Managers in Hong Kong. "We are waiting for this to stabilize first, but when that happens, people will realize that it is foolish to group North Asia with the rest of the ME."

Blind selling across emerging markets has particularly affected Asian equities, thanks in part to $ 2 trillion following the MSCI benchmark. The last three months of the last three months are companies based in Hong Kong, China and Taiwan, which were among the most important titles at the beginning of the year. In March, Taiwan Semiconductor Manufacturing Co. was listed in 63% of Emerging Markets Portfolios and Tencent Holdings Ltd. in 53%, according to eVestment data.

The rotation around the latest indexing options due in June has been so aggressive that the largest exchange-traded fund that has followed the index lost $ 5.4 billion this month. when the chaotic devaluation of the yuan has shaken markets around the world.

As volatility soars, calls to stay in cash increase more and more. Investors prefer to avoid massive sales safely, even though valuations in Asia are the least expensive in years. Hong Kong's tonnage is trading at just under 10 times projected earnings, the lowest since 2016.

"A lot of players are on the sidelines – you do not want to be on the wrong side," said Stephen Innes, head of trading for Asia Pacific at Oanda Corp. in Singapore. "We have run out of space EM, but now we have flattened our positions. The flow is very unidirectional now. I do not think the outings are over by any means. "