Chart of the Week: Hang Seng Index Rises Amid Hong Kong National Security Law

The benchmark Hang Seng Index in Hong Kong notched up a 3.3% gain this past week as Hong Kong’s contentious national security law was passed by Beijing just before the 1 July handover anniversary.

Details of the law only came to light at 11pm on the evening of 30 June, just before it was imposed on Hong Kong.

The national security law aims to criminalise acts under four categories; secession, subversion, terrorism, and collusion with a foreign power.

International investors and commentators have said that this will increase uncertainty in the Special Administrative Region (SAR) given that Hong Kong is known for its independent judiciary and rule of law.

However, the stock market took the law in its stride with a gain of 2.9% on Thursday – the first trading day after 1 July (see chart below).

Some of this buying was initiated by mainland Chinese investors. According to Bloomberg, mainland-based buyers bought HK$5.1 billion (US$656 million) worth of Hong Kong stocks on Thursday.

Other market-watchers chalked up the gains to a degree of relief among investors that stability may return to the city after a year that has seen anti-government protests and the Covid-19 pandemic.

Tech wins big but watch relations

Although property stocks rebounded in the wake of the mini-rally, one of the biggest winners continued to be technology names, in particular Tencent Holdings Ltd (SEHK: 700).

The WeChat operator and gaming giant saw its shares add about 8% in just four trading days this week as a potential second wave of Covid-19 infections in China could see it continue to benefit from the stay-home trend.

On the broader front of US-China relations, the national security law has already raised tensions between the two superpowers.

The US Senate has passed a sanctions bill in response that targets individuals who are complicit in the erosion of Hong Kong’s autonomy and the banks that do business with them.

Longer term, it continues to show that the world is being divided between a US-based and a China-based system. I believe there will be more tensions in the months ahead but as investors we should always focus on the long-term potential of great companies.

Hang Seng Index – Five-day performance

Source: Google Finance