22 October 2016
Investors should take profit from financial, property, resources and shipping counters while the money is good. Photo: CNSA
Investors should take profit from financial, property, resources and shipping counters while the money is good. Photo: CNSA

Signs global money will flow back to Hong Kong

China has been easing monetary policy since last year in a bid to offset faltering economic growth amid an anti-corruption campaign.

As a result, A shares have been surging since July last year.

At the same time, the influx of mainland investors into Hong Kong sent the Hang Seng Index soaring to 28,032 points on April 17 from 23,677 points in late March.

How will these deep-pocketed Chinese investors continue to affect the Hong Kong market?

When Chinese damas  — wealthy middle-aged women — flooded into Hong Kong in August 2013, they caused a spike in domestic gold prices.

Soon, global gold prices rallied to US$1,400 from below US$1,200, running up eight straight weeks of gains, even as billionaire investor George Soros dumped a dozen tons of gold from his holding.

The Shiller P/E Ratio, an inflation-adjusted measure of likely future returns of an S&P 500 stock, hit 26.3 times in March, close to the September 2007 and 1996 peaks.

The current P/E ratio is 61.5 percent higher than in the past decade. The Shiller P/E Ratio fell to 15 in 2009 after peaking at 27 in 2007. By comparison, the S&P 500 has surged 192 percent since 2009.

That indicates global money will flow back into emerging markets such as Hong Kong given that the Dow Jones Industrial Average appears to have run out of steam after hitting 18,289.

Famed investor Stan Druckenmiller, George Soros’ main cohort when he broke the Bank of England in 1992, said the invisible hand of central banks has built up asset bubbles in property and stocks.

Around the world, central banks encourage investors to borrow short-term capital for long-term investment.

The housing bubble in the United States in the 1990s and 2007 and the ongoing stock market bubble since 2009 resulted from ultra low interest rates and loose monetary policy.

The S&P 500 has been awash in liquidity. On April 10, the benchmark’s P/E ratio hit 20.47.

A number of Wall Street bankers have made more than US$653 million since 2009, according to estimates by the Massachusetts Institute of Technology.

The New York Times reported that some speculators made seven-digit profit in the past six years.

A Japanese investor made a US$182 million profit on the back of a strong Nikkei index which has surged to 20,000 points thanks to a massive economic stimulus by Prime Minister Shinzo Abe.

In the US, the wealthy may face some headwind from President Barack Obama’s plan to levy a billionaire tax.

The investment strategy is short old-economy stocks and long new-economy stocks.

Investors should take profit from financial, property, resources and shipping counters.

Meanwhile, Apple’s sustained rally means that a US$1,000 investment in 2001 will be worth more than US$140,000 today.

Tencent Holdings (00700.HK) saw its share price climb to HK$171 last week from 68 HK cents in 2004. A HK$6,800 investment in 2004 will get HK$1.7 million today.

The market should find the next Tencent rather than hold on to old-economy stocks. Investors should follow the trend.

This article appeared in the Hong Kong Economic Journal on April 20. 

Translation by Julie Zhu

[Chinese version中文版]

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Chief Adviser at the Hong Kong Economic Journal

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