A Paradigm Shift Towards a Green and Sustainable Finance Center

Hong Kong in Transition: A Paradigm Shift Towards a Green and Sustainable Finance Center 19 3.1 The Volatility in the Financial Market The fluctuations in the economy affect investors’ confidence, which eventually is transmitted to the financial markets and reflected in their performance. Stock market indices are designed to reflect the overall health and sentiment of the financial markets and are classified by the regions they represent. They are used as key indicators to understand the impact of economic changes on the financial markets. Using the data of January 2018 as the baseline, we have standardized the following five indices: the S&P 500 and Nasdaq for the United States, the Nikkei 225 for Japan, the Shanghai Composite for China, and the Hang Seng Index for Hong Kong in the period from January 2018 to May 2024 (Figure 10). All five markets experienced different levels of growth from mid-2019 and reached a temporal high at the beginning of 2020. Right after this, they all declined quickly. By mid-2020, the S&P 500, Nasdaq Composite and Nikkei 225 Indices began to rebound strongly. Although these three experienced another round of decline in 2022, they resumed the rising trend in 2023. By May 2024, these three indices increased by 91 points on average, compared to their starting points of 100 in January 2018. In mid-2020, there were also improving signs in the performance of the Shanghai Composite and Hang Seng Indices. The Shanghai Composite Index managed to return to the baseline of January 2018 in the second half of 2020. It stabilized for some time until the beginning of 2022. After that, it entered a new round of slow decline. In contrast, the Hang Seng Index only managed to grow back slightly in 2021. Its performance in the whole period, from 2018 until May 2024, was below the baseline and presented an overall downward trend, highlighting how Hong Kong’s financial market lags behind the other four. The Morgan Stanley Capital International (MSCI) Global Market Index also showed a divide in March 2020, indicating a reverse from decline to growth in the global markets in subsequent years (Figure 11). Although the MSCI Hong Kong Index outperformed the Hang Seng Index across the period, especially after mid-2021, neither of these two managed to bounce back to the baseline of January 2018 by May 2024. This shows how, at the moment, the Hong Kong stock exchange market is not in a competitive position in the global financial market. Despite the Hang Seng Index’s impressive rebound in Q3 2024, surpassing the 20,000 and 23,000-point milestones, the surge was primarily driven by external factors rather than a true market recovery. Key drivers included the U.S. Federal Reserve’s unexpected rate cuts and a series of economic support measures from Mainland China. However, underlying market conditions remain weak. This fragility became evident with a sharp downturn, as the index plummeted over 10% in just two days on October 8 th and 9 th , raising concerns about the sustainability of the recovery.