Mixed fortunes for retail investors betting on HK, Japan
Koreans who have invested in the stock markets of Hong Kong and Japan are experiencing contrasting investment outcomes.
This is because the Chinese government’s initiatives in the capital markets are boosting the previously plunging Hong Kong stock market, while Japan is facing currency turbulence due to a prolonged monetary easing policy.
The dramatic turnaround in the Hong Kong stock market began on April 19. The Hang Seng China Enterprises Index (HSCEI), which had fallen below the 5,000 level and caused massive financial losses for Koreans invested in the index through equity-linked securities (ELS), reached 6,383.40 during Monday’s trading.
The market gained momentum after the Chinese government invested 2 trillion yuan for its stabilization efforts in January and announced a guideline on capital markets on April 12. The guideline’s main objective is to increase dividends and intensify share buybacks and cancellations, bolstering the stock market.
The issuance volume of ELS tied to the HSCEI, which had been struggling following a significant loss event, has thereby increased. According to the Korea Securities Depository (KSD), the issuance amount for the ELS marked a low in February at 22.9 billion won (16.4 million) and increased to 72.2 billion won in April.
Unlike them, concerns of individual investors who heavily bet on the Japanese market are only growing.
According to the KSD, the iShares 20+ Year US Treasury Bond JPY Hedged ETF, listed on the Japanese stock exchange, was the most purchased overseas-listed exchange-traded fund (ETF) by domestic investors this year. Individual investors made net purchases totaling $354.5 million.
This product, which invests in ultra-long-term U.S. bonds of over 20 years and is denominated in Japanese yen, has attracted interest as it could potentially profit from both bond price appreciation and currency gains if U.S. policy rates fall.
However, individual investors are facing significant losses of negative 13 percent, as the yen-dollar exchange rate surpassed 155 yen last week, reaching 160 yen — a level not seen in 34 years.
Given the difficulty in predicting shifts in U.S. monetary policy, the recovery timeline for investors in yen-denominated products is expected to be prolonged.
Investors in the Hong Kong stock market, however, are also advised to exercise caution due to concerns that a prolonged economic slowdown in China could exert longterm downward pressure on the market.