The Hong Kong market has been fairly volatile in the second half of this year. Investors are waiting for the first US rate hike in nearly nine years. I hope stocks enjoy a good uptick in the latter half of this month after the Fed uncertainty is removed.
Right now, investors are still awaiting the final decision from the US central bank, which begins a two-day policy meeting Tuesday.
However, short-sellers have already started pushing down the market, nudging the Hang Seng Index below the key support level of 21,800 and 22,000 points last week.
I suggested earlier this month that investors should be conservative and reduce their stock holdings to 20 percent of their portfolios. If they followed my advice, they would have protected most of their buying power and be calmly waiting for the right opportunity.
Global capital flows would see huge volatility given various themes available for big investors. Individual investors would be better off waiting on the sidelines.
Let’s look at technical figures before determining our strategy. Investors could buy stocks at around 20,500 points within next week for short-term opportunity. However, medium-term investors should wait for further consolidation before building positions.
The market has shown strong signs of being oversold for now. The Fed is expected to raise its key rate by 25 basis points within this week, which would further drive up US dollar index and lure more money into dollar assets as safe haven.
The dollar has eased against euro recently, as well as other currencies in developed markets, like Japanese yen and Australian dollar. It seems the Fed liftoff may have mild impact on developed economies.
By contrast, Asia, South America and other emerging markets may continue to struggle with capital flight. These regions have already been battered by equity and commodity slump earlier this year. We might see a repeat of rebound similar to euro, if the pace of the US rate hike is “dovish”.
The Chinese yuan has accelerated its slide against the dollar in recent weeks, given market expectations that the Chinese central bank will cut interest rates and reserve requirement ratios again following the Fed liftoff.
The upcoming Central Economic Work Conference will unveil more pro-growth measures, which would stimulate Hong Kong and mainland markets.
Nevertheless, both markets still grapple with slower economic and earnings growth. That has put a question mark over how long a rebound can sustain. Investors should better take a short-term approach.
China economic slowdown
China’s economic restructuring is set to be painful. Recently, there have been various investigations involving senior management of brokerages and listed companies. That could hold back some investors. However, it’s a good thing for the long term.
Financial markets are set to be more volatile as China speeds up market opening effort amid sluggish global economic growth. The renminbi foreign exchange reform has already exerted shock for various industries.
The ongoing consolidation of various big central state-owned enterprises involves fiscal issues for central and local governments amid current overcapacity and industry downturn. Companies are mired in high debt burden and flagging economic growth. That could make the reform even more complex.
How should investors capture a rebound before the year end?
Well, they should increase equity exposure to 40 percent of their portfolio.
Investors should collect gradually in the range of 21,000 and 20,500 points on the Hang Seng Index, targeting mainly strong and over-sold stocks.
Strong stocks or industry leaders usually benefit from policy support and window-dressing effort before year-end by fund managers. Such firms include new-energy cars and battery plays such as Geely Automobile Holdings (00175.HK) and China Titans Energy Technology Group (02188.HK).
Sportswear stocks are also likely to shine, including ANTA Sports Products (02020.HK), XTEP International Holdings (01368.HK) and Li Ning Co. (02331.HK). Internet Plus-related stocks, as well as pharmaceutical and healthcare plays, will also lure more capital next year.
Investors could also take bet on stocks like Value Partners Group (00806.HK), mainland property firms, and telecom operators like PCCW (00008.HK) and HKT Trust & HKT (06823.HK).
They could also collect some A-share ETFs at low level when the Shanghai Composite Index tumbles to 3,400 points, as A-shares are set to outperform Hong Kong market.
This article appeared in the Hong Kong Economic Journal on Dec. 15.
Translation by Julie Zhu
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