23 October 2016
The US stock market has performed the best among the developed markets. Photo: Bloomberg
The US stock market has performed the best among the developed markets. Photo: Bloomberg

Markets stage sharp rallies on slower US rate hikes

The Hang Seng Index is likely to move in the range of 20,700-21,000 points in the short term.

Investors have been constantly switching among different bets for short-term speculation because of the lack of turnover.

China’s property market

Stocks of leading mainland property developers have given up part of their gains recently, as it’s widely expected that the Chinese government will unveil new tightening measures for the red-hot property markets in the first-tier cities.

In the meantime, some second- and third-tier cities have shown exorbitant price rallies; in particular, cities like Suzhou that are close to first-tier cities.

Some real estate projects there have been snapped up quickly as it’s only one-hour by subway to Shanghai.

I went to a property project developed by a Hong Kong company in Suzhou recently, and a flat with an area of around 100 square meters cost only around 1 million yuan (US$150,000).

All the apartments in the project sold out very quickly.

There is huge upside room in price for flats in cities close to first-tier cities.

Home prices in Suzhou rose 10 percent last year.

The government intends to tighten its rules on the property sector, since mainland investors usually move with the crowd.

US equity market

In the meantime, the Dow Jones Industrial index, S&P 500 index and other indices have all started to generate positive returns after the deep correction earlier this year.

Apart from emerging markets, all other equity markets have registered double-digit percentage gains.

The US market has performed the best among the developed markets.

It has soared three times since 2009, when US President Barack Obama took office, and the unemployment rate has dropped from 10 percent to 4.9 percent.

The proportion of US adults without an insurance policy fell from 18 percent to 11.8 percent.

The government deficit has declined to 2.8 percent of gross domestic product from 9.8 percent.

The consumer confidence index has surged to 92.2 percent from 37.7 percent in 2009.

It remains questionable whether the next US president is able to make such tremendous changes in the next eight years.

It will be very difficult, since 2009 was the trough for the US economy. And the next president will face huge challenges in the future.

The slow pace of US rate hikes and a 15 percent growth in earnings at US corporations would help the US market to stay at the current level.

If so, the US market would able to recoup all of its loss last year, US veteran investor Richard Bernstein said.

This view is quite optimistic.

However, I believe the US market may continue to trade up and down in the first half of this year, and there is limited upside, since it has already reached a high valuation after a multi-year bull run.

Emerging markets

In the meantime, the MSCI Emerging Markets Index has rebounded strongly since mid-January, mainly because of a weakening US dollar and the expectation for slower US rate hikes.

The Turkish and Philippine markets have jumped 20 percent, and the Brazilian, Thai, Indonesian and Malaysian markets have posted strong gains in their equities and currencies.

The Russian market has risen for five straight weeks, the longest rally in three years.

This article appeared in the Hong Kong Economic Journal on March 24.

Translation by Julie Zhu

[Chinese version 中文版]

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Founder and Managing Director of Pegasus Fund Managers Ltd.

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