HK33/HKD

After the first quarter rally that took the Hong Kong 33 or Hang Seng past the 31,000 mark, the benchmark index seemed all set to kick off its biggest overhaul in more than 50 years, which would see it reach 80 stocks by 2022. The relative calmness of the Hong Kong 33 in the second quarter was no indication of what was in store in the following three months. The index plummeted through most of July, exited August lower, and staged a sharp downturn in September, which saw the Hang Seng reach around 24,000. While part of the selloff can be attributed to profit taking, investors also steered away from tech stocks on concerns around China's regulatory tightening.

The trade deficit in Hong Kong widened sharply to HK$26.3 billion in August, from HK$14.6 billion in the year-ago month. Although exports jumped 25.9% year-over-year to a record high of HK$433.7 billion, imports grew at a more rapid pace of 28.1% to an all-time high of HK$459.9 billion. Analysts expect the country’s trade deficit to widen slightly to HK$27 billion in September.

Hong Kong's unemployment rate fell to 4.7% in the June to August period, compared to 5% in the previous three-month period. The country recorded the lowest jobless rate since March last year, backed by continued recovery of the economy. The number of unemployed people in the country declined by 10,700 to 187,700.

The annual inflation rate in Hong Kong eased to 1.6% in August, from a five-year high of 3.7% recorded in the previous month.

China's trade surplus widened to $58.34 billion in August, from $57.14 billion in the year-ago month. The Asian dragon recorded the largest surplus since January, with both exports and imports reaching record numbers. Exports grew 25.6% year-over-year to $294.32 billion, while imports surged 33.1% to $235.98 billion during the month. Analysts expect the country’s trade surplus to shirk to $26.7 billion in September.

The US economy added only 235,000 jobs in August, with the spread of the Delta variant of covid-19. The latest reading was the lowest in seven months. Analysts expect the country’s economy to add about 450,000 jobs in September, with the unemployment rate projected to decline to 5.1%, from 5.2% in the previous month.

The slowdown in China’s economic growth and elevated inflation rates in the US and EU could be a strong headwind for the Hong Kong 33 in the fourth quarter. Analysts expect the index to move closer to the 23,000 mark by yearend. With the Hang Seng struggling to find qualifying stocks to add, the index could miss the target of 80 next year.