Investors hit hard by Hong Kong stock fall

People walk past an electronic board displaying the Hang Seng Index figures in Hong Kong, Tuesday. EPA-Yonhap

By Lee Min-hyung

Korea's retail investors have been hit hard by the abrupt stock fall in Hong Kong amid fears that escalating political tension between the United States and China will further drive capital out of the Asian financial hub.

According to data from the Korea Exchange, retail investors here had purchased 82.5 billion won ($66.7 million) worth of the TIGER China Electric Vehicle SOLACTIVE exchange-traded fund (ETF) between March 1 and 15. This is the second-best selling ETF favored by individual investors here.

However, the ETF reported a double-digit decline after hitting a one-year high of 18,505 back in the fourth quarter of 2021. The SOLACTIVE ETF closed at 14,900 won on Wednesday, down by around 20 percent from the previous high last year.

This is in line with declines in Hong Kong's major stock indices.

The Hang Seng Index plunged by more than 5 percent and closed at 18,415.08 on Tuesday, the lowest in six years. Hang Seng China Enterprises Index also extended losses by falling more than 6 percent during the same period. This was the first time since 2009 that the index failed to defend the 7,000-mark.

The weakening stock performance there was attributable to a combination of multiple external risk factors ― such as Washington's move to delist Chinese firms from U.S. stock markets and the outbreak of war in Ukraine.

Market analysts urged retail investors to pay special attention to investing in ETFs involving foreign stocks during this period of geopolitical uncertainty.

“The dispute between the U.S. and China will deepen further ahead of the former's midterm election in November, and expectations are the U.S. government will place more Chinese firms on a blacklist,” KB Securities economist Park Soo-hyun said.

This will restrict U.S. capital from flowing into China or Chinese firms, which will end up disturbing the balance between supply and demand in the Hong Kong stock markets that have a high portion of global investors, according to the analyst.

The brokerage house also advised investors to remain conservative in their approach to Hong Kong-listed stocks until the third quarter of 2022 as equity markets there will be exposed to mounting geopolitical risks.