This summer time, when Hong Kong’s inventory market rout appeared to haven’t any finish in sight, the town’s monetary chief, Paul Chan, jumped into motion, making a activity power to inject confidence right into a market that was being pummeled by world traders cautious of China.

Hong Kong minimize taxes on buying and selling and Mr. Chan went on a roadshow to Europe and the USA, promising measures to “let traders really feel optimistic in regards to the outlook.” Buyers have been something however sanguine, nonetheless, and the town’s Cling Seng Trade is among the many world’s worst-performing inventory markets this 12 months.

The Cling Seng Index completed Friday, its final buying and selling day in 2023, 14 % decrease than it began the 12 months. Shares in mainland China additionally recorded losses this 12 months, with the CSI 300, an index that tracks corporations listed in Shanghai and Shenzhen, declining 11 %.

Tons of of billions of {dollars} flowed out this 12 months as cash managers and pension funds decreased their holdings in Hong Kong, which has lengthy been a gateway for international traders wanting to place cash into mainland China. The outflows have been largely pushed by an financial downturn in China and mounting strain on American traders to promote their publicity to Chinese language corporations.

“Most of the corporations within the Cling Seng Index are primarily corporations which can be leveraged to financial development in China,” mentioned Chetan Seth, an Asia fairness strategist at Nomura, a Japanese financial institution. “China’s weak economic system clearly has weighed on the efficiency of Chinese language shares listed in Hong Kong,” Mr. Seth mentioned.

The losses in Hong Kong and the mainland contrasted sharply to what occurred in the USA, the place inflation eased and the job market was robust. The S&P 500, which broadly tracks U.S. shares, was up 25 % in 2023, underlining the divergent paths of the world’s two largest economies.

International traders began the 12 months optimistic that China’s economic system would bounce again after three years of strict pandemic guidelines and lockdowns. However when China totally opened its borders in January for the primary time since 2020, many households have been reluctant to spend. Non-public companies floundered and the economic system slowed.

China’s roiling property disaster has intensified the financial hunch and spilled over into Hong Kong. After years of overexpansion and borrowing from international traders in Hong Kong, practically each personal Chinese language actual property developer has collapsed.

Chinese language property corporations listed in Hong Kong have been among the many worst-performing shares. The true property developer Nation Backyard, one of many greatest casualties of the property disaster, has misplaced practically three quarters of its worth this 12 months because it edges nearer to a collapse.

Mr. Chan, the finance secretary, has blamed “misunderstandings brought on by Western political prejudices” for the inventory market’s poor efficiency, as geopolitical tensions between Beijing and Washington hit a low level in the course of the 12 months. However 2023 was the fourth consecutive 12 months that the Cling Seng has recorded losses. Over that very same time, Hong Kong’s position as a monetary nerve heart for Asia has diminished because it was pressured to align extra intently with Beijing beneath a far-reaching nationwide safety legislation.

Hong Kong’s lack of autonomy to China has apprehensive some world traders.

A former British colony, Hong Kong was handed again to China in 1997 with a pledge that it might keep a excessive diploma of self-governance beneath a coverage referred to as “one nation, two programs.” For 20 years, this allowed Hong Kong to outline itself as distinctive and distinct from the remainder of China, whereas providing monetary entry to the world’s second largest economic system.

However after citywide protests in 2019, Beijing imposed the nationwide safety legislation, which has silenced political debate and stifled civic exercise.

Greater than 100,000 residents have left Hong Kong over the previous couple of years, partly due to the safety legislation and hard pandemic restrictions. Many younger Hong Kong professionals who’re nonetheless there have expressed a want to go away, making it a problem to recruit the expertise that has helped the town operate as a monetary heart.

As soon as a significant hub for Wall Road banks, Hong Kong had a drought of preliminary public choices this 12 months. Firms raised the bottom amount of cash since 2001, leading to layoffs at monetary establishments citywide.

Many worldwide corporations have stopped hiring for brand new positions in Hong Kong. With much less cash coming into the trade and fewer transactions, dozens of brokerages have additionally closed.

China’s downturn in addition to geopolitics, elections in main economies together with the USA, and the actions of central banks are all prone to make 2024 one other unstable 12 months for Hong Kong.

Addressing a few of these points in an interview in a recent interview with the South China Morning Publish, Mr. Chan mentioned, “2024 will likely be a 12 months of excessive uncertainty.”