Asian-Pacific Stock Market: A Drag on AUD Gaining Steam

The stock market of Hong Kong has given a weak performance recently, which has dropped by about 8% since early this year. Obviously, it has fallen behind its counterparts worldwide, especially the U.S. stocks. Among them, S&P 500 has outperformed others, rising by nearly 19% since the beginning of 2021. In fact, this is not a situation barely around recently. According to the statistics over the past decade, the DJX and S&P 500 have surged by 211% and 277%, respectively, figures inferior to the Nasdaq climbing 602%, whereas the HSI has only increased by 25%, which is disappointing.

Nevertheless, Hong Kong has seen a relatively good economic performance in the past ten years with capital flocking to the real estate market instead of the stock one, thus leading the former to a landslide triumph in its 10-year competition with HSI. The weak performance of stocks in Hong Kong is not caused by the pandemic as it has been stable recently but by the latest regulations and rules rolled out by Mainland China. It is believed that an emotional reversal to optimism is hard to emerge in the short-to-medium term in the stock markets of Mainland China and Hong Kong.

For instance, since the bankruptcy of Lehman Brothers in 2008, central banks of multiple countries led by the U.S. have vigorously beefed up the regulation on the banking industry and financial institutes, leading them to ineffective operation. Although the stock prices of HSBC ranged from HKD 130 to HKD 153 before the massive corporate failure worldwide, they have witnessed a steep slump up to now, worth HKD 42 at present, a figure even hitting HKD 27.50 in the past. The example indicates that stock prices can be weak in the long run once a field experiences new regulation changes.

Currently, regulation has become stricter on myriads of fields in Mainland China and Hong Kong, thereby hindering involved stock markets from making progress. A bearish trend of the Asian-Pacific stock market can take a heavy toll on the AUD aftermarket in the long term. Since early 2021, AUD/USD has decreased by 7%, a cumulative decline in which this year should be 10% on a very conservative estimate. However, according to the current situation, this decline has a chance to reach 15% or more. Technically, it is worth noticing that the lower level of AUD/USD at 0.7000 is a significant threshold. After a breakout, the decline aforementioned may exacerbate.