Asia-Pacific Stocks Hit New Highs, Hong Kong Stocks Lag Behind

Amidst recent record highs in major Asia-Pacific stock markets, Hong Kong stocks have been performing poorly, leading to low morale among investors and even analysts.

The Hong Kong Hang Seng Index has been in a slump since falling below 26,000 points in mid-last month. It has continued to deteriorate, closing down another sharp 387 points or 1.59% today at 23,924 points, marking a new low for the past month and a half. Including today, Hong Kong stocks have fallen for three consecutive days.

This downturn in Hong Kong stocks began at the start of the year. At that time, Hong Kong stocks had risen from a low of around 16,000 points two years prior, reaching about 27,000 points by the end of last year. However, after holding steady at this level for a period at the beginning of this year, they began a steady decline.

Since the beginning of this year, the Hang Seng Index first tested the 26,000-point level, then 25,000 points, and in the last two days, it has fallen below 24,000 points.

Regarding the dismal performance of Hong Kong stocks, some analysts have been at a loss for words recently. Some individuals commented on television programs, expressing bewilderment that while major Asia-Pacific markets including Taiwan, Japan, and South Korea have repeatedly set new highs, Hong Kong alone is "suffering in isolation," prompting sighs of regret.

Looking back at the past few years, Hong Kong stocks have indeed significantly lagged behind Taiwan, Japan, and South Korea. Taking the Taiwan Weighted Index as an example, at the end of 2018, the Hang Seng Index had surpassed 33,000 points, while the Taiwan Weighted Index was just over 11,000 points, a considerable difference.

By 2023, the Hang Seng Index and the Taiwan Weighted Index began to move in opposite directions, with the former starting to decline and the latter rising.

Regarding the reasons for Hong Kong stocks' poor performance, local analysts three years ago largely attributed it to the US raising interest rates, which attracted overseas capital to flow into the US. However, this explanation failed to account for why only Hong Kong stocks were underperforming while markets in Taiwan, Japan, and South Korea moved against the trend.

At the beginning of this year, some local analysts attributed the decline in the Hang Seng Index to Hong Kong's lack of focus for attracting foreign investment, such as the semiconductor and artificial intelligence sectors supporting Taiwan, Japan, and South Korea. However, other analyses pointed out that Hong Kong has similar stocks but still fails to attract capital inflows, suggesting that these explanations do not address the deeper reasons for the decline.

Only recently have some analysts begun to suggest that one of the reasons for Hong Kong stocks' poor performance is foreign underweighting (the proportion of assets allocated by foreign institutions in a specific market or industry is lower than the market's weight in international indices or its historical average). These analysts have not clearly explained why foreign investors are underweighting; some analysts also believe that the current performance of Hong Kong stocks does not reflect the true state of Hong Kong's economy.

After three years of impact from the COVID-19 pandemic starting in early 2020, Hong Kong experienced an economic downturn. At that time, netizens on mainland Chinese social media described Hong Kong's financial situation as a "ruin of an international financial center."

However, after years of effort, Hong Kong's financial industry has clearly shown renewed vigor, dispelling the above mockery. The "2026 Global Wealth Report" released by Boston Consulting Group a month ago further indicated that in 2025, Hong Kong's managed cross-border wealth will increase by 10.7% to US$2.9 trillion, surpassing Switzerland for the first time to become the world's largest center for cross-border wealth management.

Some analyses suggest that Hong Kong's ascent this time, surpassing the significance of individual financial city rankings, may reflect the phenomenon of the "global economic center of gravity shifting eastward." Hong Kong Chief Executive John Lee and other officials have spoken enthusiastically about this, using it to emphasize that Hong Kong's status as an international financial center remains unchanged.

However, compared to international asset management, the performance of Hong Kong stocks is like night and day. Whether this confirms the netizens' description of a "ruin" remains to be seen through time and market validation. (Editor: Chou Hui-ying) 1150618

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