The Hang Seng China Enterprises Index (HSI) is now down 9.16% year-to-date. This is particularly striking given the resilience seen across other Asian equity markets, including China, Taiwan, South Korea and Japan.

The HSI’s performance is underwhelming by any standard. As the main benchmark of the Hong Kong stock market, it comprises up to 100 of the largest and most liquid companies listed on the Stock Exchange of Hong Kong. Historically, Hong Kong-listed Chinese companies (H-shares) tend to struggle under the following conditions:

(1) A surging US dollar (USD)

A strong USD tends to:

• Reflect broader US economic growth and outperformance, drawing capital away from emerging markets and into US assets.
• USD strength also typically puts downward pressure on the RMB, raising concerns over currency depreciation and reducing the value of Chinese corporate earnings in USD terms.
• In addition, Hong Kong's Linked Exchange Rate System effectively imports US monetary policy into the local economy. Because the HKD is pegged to

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