Investors often like to look for signals to cash out and, more importantly, something to talk about in a bull market run.
In Hong Kong, it is easy to know the stock market is overheated when your taxi driver offers you free stock tips, such as that Hong Kong Exchanges and Clearing (00388.HK) will go up to HK$388.
Or when you see senior citizens crowded in front of banks looking at stock prices and laughing.
But there is no better omen of a top than a reappearance of a drama starring Adam Cheng Siu-chau.
Some call him a better-looking version of legendary hedge fund operator George Soros, because sharp corrections of the Hong Kong stock market occur when Cheng’s face is seen on the television screen.
Next week, his TV series The Greed of Man will be rerun at midnight.
Many people are worried that Cheng could spoil the stock market party, which has given investors reason to celebrate every day this month.
Cheng made headlines in the past week, because the sort of rallies in which the index rose by 1,000 points were first seen on his TV series in 1992.
Famous for his roles as Ting Hai (Crab), a character who made a big fortune by shorting index futures (before jumping off a building for failing to cover his short positions at the end), Cheng has also become well known for predicting a sudden market collapse – with an unusual high accuracy rate — simply by appearing on TV.
Well documented as the “Ting Hai” effect, or “Chiu Kwan (Cheng’s nickname) effect”, it was even the subject of a report by brokerage CLSA on March 30, 2004.
It described how his drama series were related to market collapses, the first of which occurred when the Hang Seng Index plummeted 20 percent after the first show was broadcast in late 1992.
The CLSA analysts Gabriel Chan and Kenny Lau wrote: “Even though no logical reason could be found, the predictive power of the ‘Adam Cheng’ effect is mysteriously accurate — whenever Adam has played in a TV series over the past 12 years, the stock market has always fallen, from 0.1 percent to 25 percent!
“Also, only twice did the HSI end higher than when his show began.”
The duo went into great detail, running regressions on extensive market data.
They concluded that the Adam Cheng effect did not last for the entire duration of a series — the market usually rebounded before the series ended — and that the effect lessened from about halfway to two-thirds of the way through a series, the market eventually recording gains within six months.
One can only speculate about the strange magic of Cheng — further analysis perhaps centering on his influence on the global stock market — and whether his daughter, actress Joyce Cheng, may have inherited his devastating power in her TV appearances.
But seriously, it’s all a bit of a self-fulfilling prophecy, because there is no real basis for taking Cheng as a leading indicator.
His TV appearances merely provide a reason to blame for a market correction.
Sometimes people do not even distinguish between the effects of a first run or a rerun of his TV series.
It is also worth noting that the effect has seemed to diminish after the global financial crisis.
However, it should be interesting to see how next week’s rerun of the TV series that made Cheng famous will affect the sentiment toward A shares, given that the drama will also be seen in southern China at midnight.
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