Chinese companies have been dominating the Hang Seng Index, and the declines of the mainland stocks are deteriorating the global financial center status of Hong Kong.

Hong Kong launched the Hang Seng Index in 1969, initially consisting of only 33 listed companies. In 2007, the city’s regulator added the H-shares, or mainland Chinese companies trading in Hong Kong.

In May this year, the total number of the index constituents increased to 69.

According to SCMP, before Hong Kong was returned to China in 1997, the Hang Seng Index was reigned by the city’s colonial-era favorites like broadcaster TVB and flag-carrier Cathay Pacific Airways.

But today, Chinese-funded stocks such as Alibaba, Meituan, CNOOC and China Mobile are the dominant force of the index.

While China firms accounted for 53% of Hong Kong’s listed companies, Chinese stocks made up nearly 80% of the city’s 4,83 trillion dollars of market capitalization at the end of May.

At present, seven of the top 10 Hang Seng Index components are now Chinese companies. The remaining three are HKEX, HSBC Holdings, and AIA Group.

Today, Chinese technology stocks have been dominating the Hang Seng Index constituents, replacing financial services stocks. which is the pillar of the Hong Kong economy.

Some have criticized Hong Kong for becoming a “Chinese offshore financial market,” hitting the city’s ambitions as a global financial hub on the par with New York and London.

With Chinese stocks increasingly dominating Hong Kong’s stock market, the Hang Seng Index would fluctuate following the mainland stocks.

China’s impact on the Hong Kong market has been particularly obvious since the launch of Shanghai-Hong Kong Stock Connect in 2014. Chinese capital started to pour into Hong Kong.

And the Hong Kong market has already felt pain against the backdrop of China-related issues.

Hong Kong stocks missed out on the global rally due to the China-U.S. trade war, China’s implementation of the National Security Law in Hong Kong, the delisting pressure from Chinese companies listed in the U.S., and China’s tough zero-Covid policy.

Those issues were reflected in the trend of the “Hang Seng Technology Index” over the past two years. The index has dropped nearly 70% from the highest level in February 2021 to  the lowest level in March.

The Hang Seng Technology Index was launched in July 2020, tracking the 30 largest technology companies listed in Hong Kong. The vast majority of them are Chinese-funded technology stocks, including Baidu, Alibaba Group, JD.com, Bilibili, Xiaomi Group, SMIC, and Kingsoft.

The Hong Kong market would remain under more pressure amid grim economic outlook in the mainland.

In a report released on May 24, UBS cut its forecast for China’s economic growth from 4.2% to 3% this year.

JPMorgan Chase also revised down China’s growth forecast from 4.3% to 3.7% on May 23.

That figure is much lower than the government’s annual growth target of about 5.5% this year.

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