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Hang Seng 2023 outlook: the year of recovery?

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Hang Seng Index defined the year of 2022 as the third consecutive year of decline with a 15.5% loss compared to 14% in 2021. Will 2023 be the year of recovery?

BG_index_indices_FTSE_Nikkei_Dow_DAX.jpgSource: Bloomberg

Hebe Chen | Market Analyst, Melbourne | Publication date: Friday 06 January 2023 

Hang Seng 2022 review: another tough and volatile year

It’s fair to say that 2022 was a year that put the entire financial market to the test. From the decades-high inflation headache to unprecedented rapid-changing global monetary policies, the invasion of Ukraine to sanctions on Russia, to the Covid crisis in China and the geopolitical tension in the APAC region, 2022 was filled with surprises and unforeseeable challenges.

Hang Seng 2022 performance

HangSengmonthly.pngSource: Hang Seng Index


The pressure weighed on Hang Seng emerged since the beginning of 2022, when the geopolitical tension in Ukrain raised the curtain for a full year of chaos. In addition, China’s third and the worst year’s struggle with the Covid-19 and its entailed cost on the economy rattled the wild volatilities throughout the year for Hang Seng.

According to the Hang Seng Volatility Index (refer to the chart below), which tracks the 30-calendar-day volatility of the HSI, its reading peaked in March but remained at a high level (above 30) for the rest of the year, compared to around 20 in 2021.

HSI Volatility Index (VHSI) 2021 and 2022

Hangsengvolatilityindex.pngSource: Hang Seng Index


While the Hang Seng Index recouped some of the losses in the fourth quarter, especially in November when the market impressed global investors with a 26% monthly gain, it still marked a red stick for the year. Besides, the Hang Seng Tech Index (HSTECH) which comprised of the 30 largest technology companies listed in Hong Kong including tech giants Alibaba, Tencent and Baidu, posted a 27.2% decline which was one of the worst performers in the global scale.

In terms of the performance of each sector, only energy and telecommunications sectors finished the year in the green. Industrials and utilities suffered the worst pain with a 37.9% and 30.3% loss, respectively.

Hang Seng industry indexes 2021 and 2022

Hangsengindustry.pngSource: Hang Seng Index

Hang Seng 2023: What is ahead?

While the world’s post-pandemic journey entered into the new chapter and accepted that instability and unpredictability becomes the “new norm”, the journey that we have all gone through in the past twelve months has also shown some new light.

  • Chinese economy after re-opening

As it always is, China’s economy will be under the microscope in the months ahead. The key discussion will be dominated by the progress of economic recovery after China’s reopen in the final month of 2022. Global traders are eyeing China’s journey in 2023 to fix the messes behind and potentially reconnect to the rest of the world.

From an optimistic view, the anticipated “revenge consumption” after China’s reopening, especially in the areas that have been idle for three years, like travel, entertainment and retail, should have the greatest potential to regain its momentum. However, it also must be noted that, while China’s policymakers promised to boost domestic consumption and save the beleaguered economy, there is no light shed on “how” at this stage.

In addition, the years-long “Covid-zero” policy has noticeably marked permanent damage to the Chinese economy at a fundamental level; international companies are leaving, the job market is shrinking and the engine for the economic growth (property and tech) is losing its steam.

In the spring of 2023, China’s new state leaders will be on board and President Xi will begin his second decade in power. The new leadership’s approach to lead the country after a dramatic change in the nation’s history will be put to the test immediately.

  • Valuation is at decade low

2022 is the third year in a row to see Hang Seng taking a backfoot. For the past three years, Hang Seng has lost over 30% in total and is now returning to the level of 2016. This is actually not common in Hang Seng’s history, in the past 30 years this only occurred during the 2000-2002 tech bubble crash and the market bounced back in the fourth year.



In terms of the valuation, as the index is now hovering around the decade-low level, the PE ratio for Hang Seng is quite appealing. By the end of December, the P/E ratio for HSI is at 11.3x, much lower than S&P Global market’s 28 times. It’s also lower than HSI’s three-year average at 12.3x and 10-year average at 11.7x.

HangSengPEratio.pngSource: Hang Seng Index


It is not hard to argue that predicting the future is a futile exercise as no one could see the accurate picture of the market in another full 12 months' time. However, as we are now on board to a brand-new chapter, it’s sensible to get a glimpse of what is to come and hang on tight for the upcoming exciting journey.

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