Hong Kong stocks: Russian influx would be a problem, not a solution

The $520mn superyacht of Russian billionaire Alexei Mordashov is at present moored safely in Hong Kong. The city decided not to seize the assets of the oligarch, who is under US, EU and UK sanctions. Some Russian companies also see Hong Kong as a haven. That is symptomatic of Hong Kong’s decline as a financial centre, rather than a solution to it.

Gold miner Polymetal is considering switching its domicile from Jersey to Hong Kong. Shares in aluminium group Rusal already trade there. Other Russian groups have been exploring the possibility of Hong Kong financings. These would be easier to pull off if Hong Kong’s market had not just hit an 11-year low, falling below the psychological barrier of 17,000 points.

That reflected Beijing’s vow to stick to its zero-Covid policy and the imposition of fresh US tech sanctions on China.

For years, the Hang Seng index had an inbuilt hedge against China weakness. This consisted of big Hong Kong-focused companies, such as Swire and MTR, as well as Macau groups including Galaxy and Wynn Macau. Their shares moved out of step with Chinese companies listed in the city.

Lex chart showing Hong Kong stock exchange is trading near a record low valuation due to the effects of China’s zero Covid policy and weak economic growth. The natural hedge in the Hang Seng index against the mainland's weaknesses no longer works. Short sellers are betting on further market drops.

No longer. Higher borrowing costs — the Hong Kong dollar is pegged to the greenback — and an exodus of foreign companies are weighing on confidence in real estate. Home prices are heading for a five-year low. Offices have reached record-high vacancies. Macau is struggling as gaming revenues tumble.

The city’s benchmark Hang Seng index has fallen a third in the past year, more than double the decline in the mainland Shanghai Composite index. Hong Kong’s economy shrank 1.4 per cent in the second quarter, following a 3.9 per cent drop in the first quarter. The index now trades below book value.

Hong Kong should beware of becoming an international financial centre of last resort for Russian businesses. Their collective reputation has been sullied by the Ukraine war regardless of individual probity. Superyachts and listings from Russia will prompt fastidious sailors and chief executives to moor up elsewhere.

The Lex team is interested in hearing more from readers. Please tell us what you think of Hong Kong stocks in the comments section below.


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