HK33/HKD

The Hong Kong 33, aka Hang Seng, remained highly volatile in the fourth quarter but maintained an uptrend. The index gained almost 16% over the three months but remained below the pre-pandemic levels.

The Hong Kong 33 breached the 27,000 mark for the first time in the pandemic era on December 30, despite news of rising coronavirus cases in the US and Europe clouding investor sentiment. The index has been boosted by economic growth in China, which could continue to lift the Hong Kong market in 2021.

The US economy added 245,000 jobs in November, versus 610,000 job adds in the previous month, missing the market expectations of 469,000 by a wide margin. Job gains in the world’s largest economy is expected to slow further, with the country likely to add only 222,000 jobs in December.

The Hong Kong economy contracted 3.5% year-over-year in the third quarter, recording a decline for the fifth straight quarter. For the fourth quarter, the country’s GDP is projected to shrink by 1.5%.

The unemployment rate in Hong Kong declined to 6.3% in the three months to November, compared to 6.4% in the earlier period, with the jobless rate declining in almost all major sectors. However, the unemployment rate is expected to rise to 6.5% in December.

The trade deficit in Hong Kong widened to HK$36.8 billion in October, versus HK$30.6 billion in the year-ago month. Exports declined by 1.1% during the month, while imports grew 0.6%. The country reported a deficit of HK$270.8 billion for the first ten months of the year.

China's consumer price index surprisingly dropped 0.5% year-over-year in November, following a 0.5% increase in October. The country recorded its first deflation since October 2009 with food prices declining for the first time in around three years. The annual inflation rate is expected to decline to 0.7% in December.

Retail sales contracted by 9.3% year-over-year in October, recording the lowest decline since June 2019, compared to a 13.3% decline in the prior month. Even then, the country’s retail sales declined for the 21st consecutive month. The trend of falling sales is expected to continue in the coming month, with retail sales projected to decline 9% in November.

Although active protests in Hong Kong have been curtailed, the undertone of resistance remains, with intermittent incidents that have the potential of flaring up.

The Hong Kong 33 could be propelled by a recovery in the Chinese economy, as Chine is expected to spearhead global economic growth in 2021. Investor sentiment could also be lifted by the rollout of vaccines in various countries and the deployment of stimulus initiatives in the US and EU.