Hong Kong and mainland stocks took a roller coaster ride in the first quarter.
The gyrations came despite some certainty about US interest rates after Federal Reserve chairman Janet Yellen downplayed an imminent increase.
The dovish remarks reined in a surging US dollar and stabilized oil prices.
That said, the Hang Seng Index is likely to remain range-bound in the short term.
Foreign fund managers are skeptical about the market on both sides of the border given rising geopolitical risks in the region.
That has led two major US credit rating agencies to cut the credit outlook for Hong Kong and the mainland.
Hong Kong stocks typically trade sideways 60-70 percent of the time in a year, waiting for a catalyst.
In this case, the Hang Seng Index is likely to hover around 19,800 to 20,800 points.
Meanwhile, the Shanghai Composite Index may trade around 3,000.
The market lacks a clear driver in the absence of solid economic growth in the US, Europe and Japan.
Also, oil producers have yet to reach agreement on output quotas, adding uncertainty to the market.
In addition, many central banks are in trial-and-error mode.
The annual earnings season for listed companies has come and gone.
Most companies reported slumping profit and sharp losses due to a slowing Chinese economy and a weaker yuan.
It’s estimated that only 10 percent of companies made a profit last year. Less than 3 percent reported profit growth.
China’s top three airlines — China Southern Airlines (01055.HK), China Eastern Airlines (00670.HK) and Air China (00753.HK) — were the biggest beneficiaries of slumping oil prices.
Airline stocks may rise further if oil prices continue to fall but that would be bad news for global economic growth.
Tencent Holdings (00700.HK) and a number of banking and insurance stocks posted modest profit growth.
By contrast, certain infrastructure and high-speed railway counters maintained earnings growth due to policy support.
Internet and telecommunication stocks showed surprising strength.
Some industrial plays rose on the back of industry consolidation and policy incentives.
However, the trend is unlikely to reverse the impact of mounting debt.
Investors should buy cyclical stocks only at low prices because these are unlikely to drive the market.
Hong Kong property developers are bracing for the release of 25,000 new flats this year and are painfully aware that the market correction is far from over.
The property market has mostly posted rallies in April. Short-term investors should use the technical trend as a reference.
On Monday, the Hang Seng Index topped the 100-day moving average but retreated again.
The market is likely to trade in the range of 19,800 to 20,800 in the short term.
If the benchmark manages to hit 21,300 points, it could be a sign the market has broken free.
This article appeared in the Hong Kong Economic Journal on April 5.
Translation by Julie Zhu
[Chinese version 中文版]
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