Wuhan virus outbreak threatens to derail Hong Kong stock market in Year of the Rat

South China Morning Post Dipublikasikan 13.01, 24/01
Wuhan virus outbreak threatens to derail Hong Kong stock market in Year of the Rat

Optimism in the Hong Kong stock market about the incoming Year of the Rat has been diluted by the Wuhan coronavirus outbreak, which will determine if the city's stocks will make a "red debut" to the new year or not.

Whether the city's benchmark Hang Seng Index closes on Wednesday, January 29, the first trading day in the Year of the Rat, higher than on the last trading day of the Year of the Pig on Friday - a red debut - will depend on how quickly the new infection spreads or is contained.

"The performance of the first trading day of the Year of the Rat next Wednesday will depend on the development of the Wuhan virus," said Louis Tse Ming-kwong, managing director of VC Asset Management.

"If the outbreak becomes more severe over the next few days, during Lunar New Year, the market will go down further and a 'black debut' will be highly likely.

"However, if the situation is brought under control after the lockdown of Wuhan and nearby cities, and the spread of the disease is contained, the stock market might still be able to go up on Wednesday, for a red debut," Tse said.

The Hang Seng Index closed the Year of the Pig at 27,949, down 41 points or 0.15 per cent. It performed better than in the previous year, the Year of the Dog, during which it dropped 10 per cent. The US-China trade war as well as the anti-government protests, now in their eighth month, contributed to many ups and downs over the year, with the index swinging by around 5,400 points in this period.

The last Year of the Rat, in 2008, proved to a disaster for the stock markets, with the global financial crisis trapping investors. This time around, however, stockbrokers believed the rat would use its traits to sneak past potential traps and maintain its run for the rest of the year.

Before the Wuhan outbreak struck, brokers believed a lucky red debut was in store for the Hang Seng Index. If it closes lower on Day 1, local brokers will view the black debut as a bad omen.

Hong Kong Exchanges and Clearing chairwoman Laura Cha, Financial Secretary Paul Chan Mo-po and other officials attend a ceremony to mark the first trading day of the Lunar New Year on February 8, 2019. Photo: Felix Wong

The first day of trading in the Year of the Rat starts on January 29, after the traditional break for Lunar New Year festivities. Financial Secretary Paul Chan Mo-po, Hong Kong Exchanges and Clearing Chairwoman Laura Cha Shih May-lung and HKEX chief executive Charles Li Xiaojia will attend a ceremony marked by a lion dance to bring prosperity and good luck for the year ahead.

"I believe it will be a red debut in the Year of the Rat, as the stock market momentum has been strong in the first three weeks of this year," said Tom Chan Pak-lam, chairman of the Institute of Securities Dealers, an association of stockbrokers. "The sentiment is much better than last time round in 2008, during the financial crisis."

The first trading day of 2008 saw a black debut, with the Hang Seng Index sinking 3.6 per cent. It came as the global financial crisis began to unravel, with many US and European banks weighed down by bad debt, which in turn dragged down the global economy and market sentiment.

The incoming Year of the Rat is likely to be a different story, as the US and Hong Kong markets have improved after the United States and China signed the phase one trade deal and relieved some of the tension that has persisted between two of the world's largest economies for the past 18 months.

About 22 initial public offerings have been launched in Hong Kong this month, with seven companies making their trading debut on January 16, the busiest day in 18 months. The strong IPO market momentum came after the HKEX's mainboard was ranked No 1 in the world for listings last year, its seventh IPO crown in the past 11 years.

Tom Chan of the Institute of Securities Dealers maintained his optimistic view of the Hong Kong market despite the Hang Seng Index taking a beating this week, Moody's Investors Service downgrading the city's credit rating and fears around the Wuhan outbreak.

"The stock market has risen a lot in recent weeks, and it makes sense to have some correction. In fact, if the Hang Seng Index drops further this week, there is a higher chance of the market rising on the first day of trading of the Year of the Rat," he said.

Robert Lee, executive director of brokerage firm Grand Finance Group, also said the outlook for the Year of the Rat was positive.

"Usually, US presidential election years have resulted in positive returns that year in the US market. I am not too bearish about 2020, for both Hong Kong and the US stock markets, despite geopolitical concerns, the trade war and social issues in Hong Kong," Lee said.

"Interest rates remain low and will support the economy in the coming year. In Hong Kong, more initial public offerings are in the pipeline after listing reforms in April 2018. Many companies previously listed in the US are expected to come back to have a secondary listing in Hong Kong this year. These factors will all boost trading," he said.

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