Hong Kong stocks face uncertain prospects in April, although the month has traditionally been good for the market in the last decade.
US dollar and oil price are two key factors that will affect global financial markets as a whole in the near term.
Meanwhile, it is believed that the US Fed will undertake only two rate hikes this year, given the sluggish world economic growth and political factors in an American election year.
That said, we should bear in mind that US unemployment claims have stayed below the benchmark of 300,000 for 55 straight weeks, in a sign that growth remains intact in the world’s largest economy.
The positive jobs data has prompted some Fed officials to make hawkish remarks. That has helped the dollar regain some strength.
But the dollar strength might be reversed in the later part of April, as the market will be focusing on an upcoming FOMC meeting. Capital flows will become volatile due to uncertainties surrounding the rate moves.
In the meantime, oil price has begun to weaken again as major producers are struggling to reach agreement on an output freeze.
The Fed meeting has become a catalyst for capital flows in the short term as the US shifts to a moderate tightening cycle.
As China’s economic growth has eased to the 6.5 percent to 7 percent range, from a double-digit pace in the past, the country is facing capital outflow pressure.
The changed dynamics have affected equity markets in the mainland as well as in Hong Kong.
The Hang Seng Index and the Hang Seng China Enterprise Index posted gains in April for 8 years and 7 years respectively in the last decade, but it remains uncertain whether the track record can be maintained.
Chinese state-owned companies listed in Hong Kong have posted 15 percent decline in annual earnings on average. As a result, mainland banks might face more bad loans.
Meanwhile, state enterprise reforms have also seen limited progress so far.
China’s three oil giants are grappling with slumping oil prices. The market will be disappointed with the earnings reports.
Foreign capital might sell Hong Kong market again in the second quarter after using local shares as “ATM machine” early this year.
In that sense, the market will continue to trade in the range of 19,800 and 20,800 points this week.
I’ve suggested that investors stick with loss limits and constantly switch bets amid the lackluster global economy.
Some smaller stocks and GEM plays posted good gains last week as investors were focusing on individual firms rather than the overall market.
However, such activities won’t change the overall market sentiment as some fund managers remain on the sidelines.
It’s possible that the market might follow the pattern of low season in May and June after earnings speculation comes to a pause.
As for Shanghai, the benchmark index has recovered to the 3,000 points level as investors noted that central bank governor Zhou Xiaochuan is seeking to encourage more private capital into the equity market.
Policy hopes, driven by the annual “two sessions” in Beijing, have also helped provide a boost to A-shares.
Nevertheless, Beijing won’t repeat the bitter lesson of the leverage-driven bull market last summer. The government rescue team might exit at around 3,000 points on the benchmark index.
Investors should focus more on new-economy stocks such Tencent Holdings (00700.HK), Sunny Optical Technology Group (02382.HK) and Kingsoft Corp. (03888.HK), and also place some bets on nuclear, wind power and pharmaceutical plays.
This article appeared in the Hong Kong Economic Journal on March 29.
Translation by Julie Zhu
[Chinese version 中文版]
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