{"id":3159,"date":"2023-05-28T02:46:48","date_gmt":"2023-05-28T02:46:48","guid":{"rendered":"https:\/\/jmsc6110a.com\/capstone2023\/?p=3159"},"modified":"2023-05-29T17:09:49","modified_gmt":"2023-05-29T17:09:49","slug":"stock-markets","status":"publish","type":"post","link":"https:\/\/jmsc6110a.com\/capstone2023\/stock-markets\/","title":{"rendered":"What Moves Stock Markets? A Look at Hong Kong"},"content":{"rendered":"

[et_pb_section fb_built=”1″ fullwidth=”on” admin_label=”Section” _builder_version=”4.20.4″ _module_preset=”default” da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_fullwidth_menu menu_id=”107″ active_link_color=”#FFFFFF” _builder_version=”4.20.4″ _module_preset=”default” menu_text_color=”#FFFFFF” background_color=”#000000″ global_colors_info=”{}”][\/et_pb_fullwidth_menu][\/et_pb_section][et_pb_section fb_built=”1″ fullwidth=”on” admin_label=”Section” _builder_version=”4.20.4″ _module_preset=”default” background_image=”https:\/\/jmsc6110a.com\/capstone2023\/wp-content\/uploads\/2023\/05\/\u5fae\u4fe1\u56fe\u7247_20230523200234.jpg” parallax=”on” custom_padding=”||||false|false” da_popup_slug=”main-header” da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_fullwidth_header title=”What Moves Stock Markets?” subhead=”A Look at Hong Kong” text_orientation=”center” header_fullscreen=”on” background_overlay_color=”rgba(0,0,0,0.43)” admin_label=”Fullwidth Header” module_id=”d1″ _builder_version=”4.20.4″ _module_preset=”default” title_font=”||||||||” title_font_size=”38px” content_text_align=”center” subhead_font_size=”24px” background_enable_color=”off” background_enable_image=”off” custom_margin=”||3px|||” custom_padding=”0px||0px||false|false” title_text_shadow_style=”preset2″ content_text_shadow_style=”preset2″ subhead_text_shadow_style=”preset2″ text_shadow_style=”preset2″ global_colors_info=”{}”]<\/p>\n

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By David A. Bruce<\/p>\n

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T<\/span>he market crashes! The market takes off! Where will the market go? All possible headlines reacting to stock market behaviour, but what does it mean and how is it measured?<\/p>\n

The financial press keeps us informed on stock market movements on a daily basis, and also electronically in real-time. Individual stock prices are closely followed by investors, often leading to knee-jerk reactions to buy or sell. While various stocks can move in different directions at the same time, overall, stock market values either move up or down. Occasionally, they do not even move and remain steady.<\/p>\n

In appreciating what moves entire stock markets, we need to understand the tools used to measure market performance \u2013 indices. Each stock market will report its performance using an index, and in some cases, more than one.<\/p>\n

To explore the reasons why markets can move in unison, egging each other on and, at other times, unilaterally, we will consider three markets: Hong Kong, New York and London, with special emphasis on Hong Kong. For Hong Kong, we will monitor the Hang Seng Index<\/strong>, for New York the Dow Jones Industrial Average<\/strong> and for London the FTSE 100<\/strong>.<\/p>\n

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Key Indices<\/h1>\n

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The <\/span>Hang Seng Index<\/span><\/a> was launched in Hong Kong on 24 November 1969 with the base index of 100 being set to 31 July 1964. The number of companies included in the index has grown over the years and as of 4 May 2023, stands at 76. The index consists of the largest and most liquid stocks listed in Hong Kong. There are also four sector sub-indexes covering Finance, Utilities, Properties and Commerce & Industry.<\/span><\/p>\n

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The Dow Jones, as it is referred to, was created in 1896 by Charles Dow to help him measure the overall market\u2019s performance. The index consists of 30 large stocks covering major industries such as retailing, technology and finance. Over the years, the Dow Jones has reflected many world events, including moves from rail to air transport, the Great Depression, events of the Second World War and global financial meltdown.<\/span><\/p>\n

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The name of FTSE 100<\/a> reflects the two companies that introduced the index \u2013 the Financial Times and the London Stock Exchange. The index was launched in January 1984 and consists of the 100 largest companies by market cap listed on the London Stock Exchange (LSE).<\/span><\/p>\n

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Looking at events over the last 30 plus years will help us understand why markets moved in the way they did. Specifically, we will look at: the events surrounding Black Monday 1987, when markets were in lockstep; August 1998 when Hong Kong was out on its own dealing with overpowering speculator attacks; and the contrast between SARS in 2003 and the Global Financial Crisis in 2008.<\/p>\n

Out of the three markets, Hong Kong is very much the youngest, although it has had to grow up quickly. The history of the Hong Kong Stock Exchange is relatively short compared to those of New York and London.<\/p>\n

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The History of the Hong Kong Stock Exchange<\/b><\/h1>\n

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The first formal stock exchange was created in 1891 with the formation of the Association of Stockbrokers in Hong Kong. The name was changed to the Hong Kong Stock Exchange in 1914 with a non-Chinese membership, reflecting the ever-present British colonial influence.<\/p>\n

In 1921, a second exchange, the Hong Kong Stockbrokers\u2019 Association, was formed with an all-Chinese membership. In 1947, after the Second World War, these two bodies were merged to create the new Hong Kong Stock Exchange.<\/p>\n

Rapid economic growth led to the establishment of three more market-driven stock exchanges.<\/p>\n

1969 Far East Exchange<\/strong>
1971 Kam Ngan Stock Exchange<\/strong>
1972 Kowloon Stock Exchange<\/strong><\/p>\n

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As noted by Hong Kong Securities and Investment Institute in its licensing examination study material for Paper 1, the market was planning to open several more exchanges by 1973. Given the lack of control over the activities of these exchanges, the government enacted the Stock Exchange Control Ordinance in February 1973 banning the opening of any more exchanges.<\/p>\n

The operation of four stock exchanges lasted until 1986, when, in an attempt to strengthen market regulation, all four were unified to create the Stock Exchange of Hong Kong Limited (HKSE). Trading of the new exchange started on 2 April 1986 using a new computer-assisted system.<\/p>\n

After the dramas of Black Monday 1987, there were calls for a reformation of the Hong Kong securities industry, which resulted in two major developments. In 1989, both the Hong Kong Securities Clearing Company was created to introduce a central clearing and settlement system (CCASS) for securities transactions and the Securities and Futures Commission (SFC) was established as the single statutory markets regulator.<\/p>\n

Finally, the Hong Kong Exchanges and Clearing Limited was created in 2000 with the merger of the HKSE, the Hong Kong Securities Clearing Company and the Hong Kong Futures Exchange (HKFE).<\/p>\n

[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ fullwidth=”on” admin_label=”Section” _builder_version=”4.20.4″ _module_preset=”default” da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_fullwidth_header title=”Black Monday, October 1987″ text_orientation=”center” background_overlay_color=”rgba(0,0,0,0.2)” module_id=”d2″ _builder_version=”4.20.4″ _module_preset=”default” title_font=”||||||||” title_font_size=”32px” background_enable_color=”off” background_image=”https:\/\/jmsc6110a.com\/capstone2023\/wp-content\/uploads\/2023\/05\/stock-gd1dd09c3e_1920.jpg” custom_padding=”200px||200px||false|false” title_text_shadow_style=”preset1″ global_colors_info=”{}”][\/et_pb_fullwidth_header][\/et_pb_section][et_pb_section fb_built=”1″ admin_label=”Section” _builder_version=”4.20.4″ _module_preset=”default” custom_padding=”0px|||||” da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row _builder_version=”4.20.4″ _module_preset=”default” width=”50%” custom_padding=”61px|||||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.20.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.4″ _module_preset=”default” min_height=”356.4px” custom_padding=”|0px||0px|false|false” global_colors_info=”{}”]<\/p>\n

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O<\/span>ne of the most consequential global financial events affecting Hong Kong saw stock markets worldwide move in the same direction and time. Some would say that Hong Kong was by far the worst hit.<\/p>\n

James Hogan began his banking career in Hong Kong two days after Black Monday. A fresh business graduate from Dublin, Hogan, then 22 and single, arrived with one suitcase and checked into the YMCA just around the corner from the HongkongBank\u2019s training centre. The stock market crash of Monday 19 October 1987 had Hogan and many of his trainee colleagues wondering if banking was the right choice.<\/p>\n

\u201cIt was a doomsday scenario for youngsters starting their careers,\u201d he recalls.<\/p>\n

Stock markets had crashed around the world, led by Hong Kong and followed by Asia, Europe and the United States. Under the direction of Ronald Li, chairman of the Hong Kong Stock Exchange, the Hong Kong market failed to open for the remainder of the week, but all other exchanges continued as normal. When the Hong Kong market did reopen the following Monday, prices fell 33%, having endured an 11% fall the week before.<\/p>\n<\/div>\n<\/div>\n

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Embed from Getty Images<\/a><\/div>\n