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Casualty of Trade War, Hang Seng Index Dips Below Dow; First Time in 15 Years

With China mainland’s stock market down to a four-year low and with a very week yuan, the future of Hang Seng Index is not looking good.

Selina Cheng
    Oct 04, 2018 2:26 PM  PT
Casualty of Trade War, Hang Seng Index Dips Below Dow; First Time in 15 Years

As the trade war between the United States and China continues, Hong Kong's Hang Seng Index has been plunging recently, dropping below the Dow Jones Industrial Average for the first time in 15 years.

Just yesterday, the Hang Seng dropped nearly 500 points during the day, before rebounding slightly, and closing at 26,624. At the same time, the Dow has been hitting new highs to almost 27,000 this week, and closed on the comparable Wednesday in New York at 26,828. 

Despite trading places briefly today as the Dow plunged 340 points intraday, the Dow ended down just 200 points and remained slightly above the Hang Seng.

Not since the deadly SARS outbreak that caused economic ripples throughout Asia in 2003 has the Dow surpassed the Hong Kong benchmark. Although there were a few times since when the Dow and Hang Seng came close - for example, the 2008 financial crisis and China's stock market crash in early 2016 - the Hang Seng always rebounded faster than the Dow. Not this time. 

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Source:Hong Kong Economic Times

With China mainland's stock market falling to a four-year low and with a very weak yuan, the future of the Hang Seng Index remains in doubt. 

"It's not looking good when the US dollar is strengthening and causing Asian currencies and their stocks to fall," said Linus Yip Sheung-chi, a strategist at First Shanghai Securities told the South China Morning Post. "Hong Kong's stock market downtrend has further room to run."

On Thursday, Standard Chartered Bank and HSBC Bank both downgraded their forecast for Hong Kong's 2018 GDP growth. HSBC cut its estimate for the city's economic growth to 3.5 percent from 3.8 percent, while Standard Chartered cut its estimate to 3.6 percent from 3.8 percent for 2018. Both analysts worried that the growing interest rates could have adverse effects on equity and housing markets. In addition, the U.S.-China trade war tension shows no signs of abating. Each of these factors are expected to weigh heavily on the local stock market.

China's mainland stock markets are closed this week for the National Day holiday and will reopen on Monday.

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