Date
17 January 2017
Big retail investors in the mainland who have lots of money, connections and information usually prefer short-term speculation. Photo: Xinhua
Big retail investors in the mainland who have lots of money, connections and information usually prefer short-term speculation. Photo: Xinhua

Stock markets may rise further, along with risk

Mr. Brutal Mainland John (which refers to some heavyweight investors across the border) has now beaten his rivals in Hong Kong and other markets over the past three years.

The successful Mr. B.M. John has shifted his focus to Hong Kong and foreign markets.

More than half of all mainland stock accounts belong to retail investors.

However, surveys show that about 75 percent of money in the stock market comes from the government.

So it’s unclear whether the stock market accounts are dominated by retail investors or government money.

It’s quite sensible for all this money to tap into global markets, as the game is becoming increasingly difficult at home.

Besides, Mr. B.M. John is coming to the Hong Kong market with some kind of mandate, which may be paving the way for domestic companies to raise funds overseas.

Many mainland companies are listed in the United States, especially on Nasdaq.

However, it’s quite difficult to manipulate the entire market there, as involves wrestling with some of the smartest guys on Wall Street.

By contrast, the game is much easier in Hong Kong, a so-called global financial hub, where firms need much less money and face far less competition.

They can sell their story in Hong Kong and then put up a roadshow in foreign markets.

And there are various ways to raise money. Firms can issue bonds, obtain bank loans or tap start-up or angel funds amid the booming market.

However, big retail investors who have lots of money, connections and information usually prefer short-term speculation.

They aim for quick and big profits and ignore the risk/return ratio.

Sometimes, they won’t even consider whether the market has sufficient liquidity and trading volume to take their offers to sell.

Hong Kong stocks still have room to catch up with A shares.

If a stock’s price surges significantly all of a sudden, those who have failed to get hold of that stock will regret losing a good opportunity to make money.

That’s probably why Mr. B.M. John is trying to push up price and volume to lure retail investors in at high prices and then take profit gradually.

All the fundamental developments like “One Belt, One Road” and the new Asia Infrastructure Investment Bank will help China internationalize its currency, issue debt in global markets, open up foreign markets and get hold of foreign resources, which in turn will assist in its industrial upgrading and boosting per capita consumption.

However, all this may take a couple of years to fulfill.

And there will be huge capital expenditures in the first one or two years.

So, the whopping market gains have already fully priced in positive expectations for the future.

The feast may eventually wind up when the government and corporations feel complacent.

This article appeared in the Hong Kong Economic Journal on April 14.

Translation by Julie Zhu

[Chinese version中文版]

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JZ/JP/FL

Columnist of the Hong Kong Economic Journal

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