The Hong Kong stock market will hardly be able to dispel the shadows of the macroeconomic troubles this year.
Amid unfavorable capital flows, the major downtrend is likely to continue between small rebounds.
Investors may seize short-term opportunities while the Hang Seng Index (HSI) bounces between 18,000 and 20,000 points.
However, sluggish performance in the middle to long term is unavoidable.
Given the dim outlook for the global economy, money has been shifting from sectors that have a higher correlation with economic performance, for example the stock markets, to bonds or gold.
The HSI fell below 20,368 at the beginning of the year, a sign of a bear market, and a weak trend, in terms of mid- to long-term fundamentals, has emerged.
I marked 18,534 as a possible bottom for the HSI in the present short-term correction.
Although the index did fall below this level, it was within an acceptable distance from it.
So, I believe 18,000-18,500 offers good technical support for the HSI.
There’s hardly any breakthrough or improvement in the overall environment.
Investors with a mid-term horizon should better stand aside from the market instead of taking big bets on it.
Since many are taking short positions, it will contribute to a rebound in the bear market when they have to cover their positions.
But investors should keep mind that a short-term recovery in the market will be followed by a new decline as part of the downward cycle.
From a fundamental perspective, it is reasonable to short the Hong Kong stock market.
The Japanese central bank has started setting negative interest rates.
A similar policy used by many major central banks has raised questions about the effectiveness of the method and the central banks’ ability to stimulate the economy.
That doubt has led to a negative outlook among many for global banks.
Banks are the mother of all industries. Their struggles will affect the global economy.
Their influence has been reflected in the past years when they were making their deleveraging efforts.
The prospect of a negative interest rate policy being adopted by central banks in all major developed economies is a threat to the world’s currencies and stock markets.
It will be no good for the Hong Kong stock market.
During the Lunar New Year holiday, there was healthy growth in the spending of mainland tourists overseas, but their spending in Hong Kong was disappointing.
Increasing internal conflicts have made the city less attractive for investors.
The Hong Kong stock market will certainly have no luck in the first quarter.
Rebounds will only appear once it is oversold.
It’s not an ideal time for investors with a mid-term horizon, but as many new-economy stocks have corrected sharply recently, they may consider buying new-energy or medical stocks.
Investors can adjust their portfolios later this year, taking advantage of the corrections.
This article appeared in the Hong Kong Economic Journal on Feb. 16.
Translation by Myssie You
[Chinese version 中文版]
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