24 October 2016
Investors have been plagued by doubts about the Chinese economy and the effectiveness of Beijing's pro-growth measures. Photo: CNSA
Investors have been plagued by doubts about the Chinese economy and the effectiveness of Beijing's pro-growth measures. Photo: CNSA

Trading strategies for the short term

With major central banks continuing their monetary easing programs, there has been a renewed influx of hot money into the financial markets.

Speculative trading has led to currencies, bonds and precious metals moving up and down. Japan’s yen and China’s renminbi have gathered some strength despite wide depreciation sentiment.

Meanwhile, commodities — led by oil — have also posted some sharp gains recently.

Hong Kong’s benchmark Hang Seng Index has stabilized above the 20,000 points level after failing to break over the 100-day moving average last week.

However, conservative investors should not jump into the market as there is no sign of trend reversal in the medium and long term.

If you are a short-term speculator, you have to be very disciplined in cutting losses or booking profits depending on the situation.

If the Hang Seng Index climbs past the 20,700 level, it might rise further to 21,400. But if the benchmark falls below 19,800, it could tumble to 19,000 or 19,200 levels.

In that sense, investors could take some short-term bets this month. They could take some profit and reduce exposure once the index moves towards the higher level. But if the benchmark drops below 19,800, they shouldn’t rush to accumulate stocks.

Many fund managers adopted a technical strategy in the first quarter. We’ve seen a lot of position-building when the market tumbled below 20,400 points in January. However, the funds took profits later on most of the stocks bought at low levels, and are now waiting for the next market correction.

China and Hong Kong economies may not register high growth in the near term amid various headwinds.

The world economy is relying on government intervention at the moment. However, the interventions are becoming less and less effective.

The US has managed to drive its economy back to expansion following years of monetary easing. By contrast, a similar trick has failed to work out in the eurozone and Japan.

The yen even gained strength against the backdrop of negative interest rate policy. That’s a sign that economic stimulus measures have failed to restore market confidence.

Investors in China and Hong Kong are not sure if Beijing’s various pro-growth measures will prove effective. 

China has unveiled a debt-to-equity scheme to resolve capital delinquency issue for commercial banks and attract social capital for reducing leverage.

However, the real effect of the measures remains to be seen. Investors should be wary about the possibility that these hasty measures may not work in the end.

A number of debt-laden laggard SOE firms have outperformed on the stock markets recently.

In particular, the steel sector has become sought-after by investors as authorities are expected to unveil some industry initiatives under the 13th Five-Year Plan later this year.

Ma’anshan Iron &Steel (00323.HK), Angang Steel (00347.HK), Chongqing Iron & Steel (01053.HK) have all posted sharp gains recently.

Also, there are signs of hot money inflow into stocks like Anhui Conch Cement (00914.HK) and China National Building Material (03323.HK), as well as into some coal plays including China Shenhua Energy (01088.HK), China Coal Energy (01898.HK) and Yanzhou Coal Mining (01171.HK).

Elsewhere, healthcare, sportswear, infrastructure and high-speed railway firms are also likely to be favored in the near term.

But there is one thing that investors need to bear in mind: They should switch their bets frequently in order to make quick profits.

This article appeared in the Hong Kong Economic Journal on April 12.

Translation by Julie Zhu

[Chinese version 中文版]

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columnist at the Hong Kong Economic Journal

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