Hong Kong stocks could end their longest losing streak in 15 years in 2024, as US monetary policy easing boosts risk appetite and corporate earnings improve on China’s economic recovery, according to HSBC Holdings’ mainland China fund-management venture.

The city’s stock benchmark has endured a 34-month losing streak since touching a near-record high on February 17, 2021, shedding 46 per cent in the span. It has slumped 15 per cent this year, making it the worst-performing prominent stock index globally, as China’s recovery faltered after the promise of the economic reopening fizzled out, and overseas investors shifted their focus to the US and other Asian markets such as Japan and India.

“Hong Kong stocks have a chance of a turnaround from the long-running headwinds,” HSBC Jintrust said. “Liquidity may see significant improvement in the middle of the year. The Fed’s dovish stance will strengthen the downtrend in the yield on longer-dated US bonds. The worst of the liquidity squeeze because of the Fed’s tightening has already passed.”

HSBC has a 49 per cent stake in the Shanghai-based asset-management firm, which oversees 35 mutual funds with 45.6 billion yuan (US$6.4 billion) in assets. Its Hong Kong Stock Connect Selected Equity Fund has lost 26 per cent of its value this year.

The Hang Seng Index is valued at 5.7 times realised earnings, the cheapest among the world’s major markets, the data shows. The gauge now trades at a 4 per cent discount to its book value, compared with an average premium of 18 per cent over the past decade.

China delistings rise to near record highs in 2023 amid market sell-off

Meanwhile, bets on monetary easing in the US have been building up recently on signs of cooling inflation, facilitating outflows to cheaper assets elsewhere globally. The yield on the 10-year Treasury bond dropped below 3.8 per cent for the first time in five months on Wednesday, suggesting cuts in the borrowing costs are in the offing. The yield hit a 16-year high of 5 per cent in October.

Hong Kong’s market may remain subdued initially next year before stocks begin to rise, according to HSBC Jintrust. It prefers major players in the internet and consumer sectors whose earnings may beat expectations. HSBC Jintrust believes stocks with high dividend yields may become more attractive amid falling US interest rates.

“Hong Kong’s market may get a double boost from valuation expansion and earnings growth in 2024,” the firm said. “There’s no need to be pessimistic now.”