Usually, when news reports talk about “the stock market” being up or down, they are referring to a country’s benchmark stock indices such as the American Standard & Poors 500 (S&P 500) or the Hong Kong Hang Seng Index (HSI).

Why? These indices can represent the country’s market. Indices contain different constituents, or firms, such as the top performing companies in the country (Tretina, 2020).

​

​

​

​

Forbes defines the S&P 500 as “a stock index that tracks the share prices of 500 of the largest public companies in the United States” (Tretina, 2020).

The HKEX defines the HSI as “a market capitalisation-weighted index (shares outstanding multiplied by stock price) of the constituent stocks… [where] the influence of each stock on the index's performance is directly proportional to its relative market value” (HKEX, 2021).

​

​

The Hong Kong Monetary Authority defines the base rate as ”the interest rate forming the foundation upon which the Discount Rates for repurchase-agreement transactions through the Discount Window are computed. The Base Rate is currently set at 50 basis points above the lower end of the prevailing target range for the US federal funds rate or the average of the five-day moving averages of the overnight and one-month HIBORs, whichever is the higher. The HKMA announces the Base Rate every day before the interbank market opens in Hong Kong.” (HKMA, 2021).

As a centrally-determined rate, the base rate influences other interest rates in the economy, such as interest rates set on loans on mortgages (Bank of England, 2021). The Bank of England describes how central rates can affect daily life in their example here.

​

You may have heard that Hong Kong’s interest rates were very low around 2017. The Investor and Financial Education Council (IFEC) explores the relationship between American interest rates and the Hong Kong in the article here.

​

A market’s state can influence an investor’s decision to buy, sell, or hold on to an asset. Bull and bear markets are two of the most frequently referenced terms.

During a bull market, investors may be more “optimistic” and may purchase assets to hold rather than sell, or for “going long” (TD Ameritrade Hong Kong, 2021). TD Ameritrade, a broker registered with the Securities and Futures Commission, shares the following explanation of bull markets, where:

“Bull markets are typically defined as a period of sustained, fundamentally driven growth in share values ... and are typically associated with a strengthening economy, an increased demand for securities, and widespread positive investor sentiment”” (TD Ameritrade Hong Kong, 2021).

In a bear market, investors are usually “pessimistic and expect stocks to decline, and they may sell shares they’ve been holding. Bearish traders may also “short” stock by selling borrowed shares they intend to buy later at a lower price, looking to pocket the difference at a profit.”

A bear market is defined as “a [market] drop of 20% or more” (TD Ameritrade Hong Kong, 2021). It often “coincide[s] with a weakening economy [and] significant liquidation of securities” (TD Ameritrade Hong Kong, 2021).

The Wall Street Journal notes that on average, the economy takes 3.1 years to recover from a bear market (McKenna, 2020). 

As Forbes simply puts, “inflation occurs when prices rise, decreasing the purchasing power of your dollars” (Schmidt, 2020). Different countries track their inflation rates by using a Consumer Purchasing Index, which covers the range of price changes in a basket of goods.    

The IFEC has a short video describing inflation and its effect on Hong Kongers’ purchasing power here.

What is the rate of inflation? Visit the Hong Kong government website here, where the Consumer Price Index (CPI) is tracked. Hong Kong uses four CPI measurements, where “the Composite CPI reflects the impact of consumer price change on the household sector as a whole, whereas CPI(A), CPI(B) and CPI(C) relate to households in the relatively low, medium and relatively high expenditure ranges respectively” (Census and Statistics Department, 2021).