27 February 2020
When Hong Kong government officials warn investors to remain cautious, it may actually be a signal to buy. Photo: HKEJ
When Hong Kong government officials warn investors to remain cautious, it may actually be a signal to buy. Photo: HKEJ

Market outlook: Does anyone really know?

Henry Procter of Procter & Gamble once said: “I know I waste half of my advertising dollars…I just wish I knew which half.”

We can say the same thing about investment advice from brokerages. Only a part of it bears out over time; the key lies in figuring out what is valid and what is not. Now, let me tell a personal story.

Yesterday, I took a look at my MPF account balance, going back to where it was nine months ago. Back then, I tried to make a decision to buy an index fund (based on advice gleaned from many financial commentators), and it all boiled down to two choices – Hang Seng Index or Hang Seng Chinese Enterprise Index. I remembered an article which quoted six Chinese analysts, almost all of whom said there will be more upside for the China index.

So I put all eggs in the China index basket – only to see that the HSI had jumped almost 10 percent over the past 12 months. Who would have thought Tencent alone could go up 40 percent in year to date, and even Cheung Kong and Hutchison Whampoa post significant gains, making the HSI outperform the China index?

Given the experience, I am now inclined to take broker advice with more than the usual pinch of salt.

Morgan Stanley issued a note three months ago saying that the HSI could reach the 50,000-point mark by the end of 2015. The prediction came even as the benchmark was still trying to break the 25,000 level.

Now, what do you make of this? 

If I were an analyst, I would of course try to make as bold a prediction as possible. People will remember if your prediction turns out right. And if you are wrong, you needn’t sweat — the Securities & Futures Commission is not going to haul you up for a confession.

Having watched the stock markets over many years, I believe I should trust my instincts rather than blindly follow any particular piece of advice. Very few players have a proven track record of foretelling the financial future.

Amid this situation, how serious should we take the warning this week from Financial Secretary John Tsang Chung-wah of a potential financial storm from the Occupy Central movement?

Given the concerns about Occupy Central, whose organizers have threatened a blockade of the financial district as part of efforts to press for political reforms, I understand some local punters are worried that the stock market might not even be able to open if protesters take over the streets. I also understand the very good intention of Tsang to forewarn about a further downward revision of GDP, having seen for myself how trouble-free it is to shop around Causeway Bay these days.

But history shows that every time a government official has warned that the party would be over, there is usually some extra time (probably translating to another 1,000 points on the index) before the tide may actually turn. The theory works better when more than two officials issue the same warning, as what Financial Services and Treasury Bureau chief Chan Ka-keung and Hong Kong Monetary Authority chief Norman Chan Tak-lam did recently as they spoke about capital-flight risks.

The officials, for sure, are trying to be in a position to proclaim “Hey, we told you so!” if things indeed go wrong, because they know the music will stop once the flow of money halts. They also seem to always pick the perfect timing for their warnings because traditionally the summer music tends to stop after the first week of interim results season, usually led by HSBC.

I have no crystal ball, but I heard similar economic warnings earlier by former top brass such as Joseph Yam Chi-kwong and Donald Tsang, and the market usually did not react in the way they predicted.

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EJ Insight writer