28 October 2016
Investors may have to accept the reality that they can’t make easy money anymore. Photo: HKEJ
Investors may have to accept the reality that they can’t make easy money anymore. Photo: HKEJ

HK market to witness more volatility amid growing uncertainties

Both market sentiment and technical analysis have turned pessimistic in recent days.

That has proved my earlier projection that the market has gloomy outlook in the medium term and will continue to be range-bound in the near term.

I’ve noted that big investors are using the market’s ups and downs to make quick profits since the market still lacks a clear direction.

They use derivatives like futures index or options to increase the leverage.

The Hang Seng Index has suffered a four-day drop in early May, falling off from 21,654 to 20,058 points. It has tumbled below the key support level of 20,500 points.

The market seems to be fairly volatile this year, and a rally or correction would be over 2,000 points. If the market fails to return above 20,500 points, it may fall back further.

Major central banks have tried to ease market expectations for monetary easing measures amid sluggish global economic growth.

Monetary stimulus has fading impact on economy, and has even caused economical stagnation and deflation in certain places.

Hong Kong, which is one of the world’s most liquid markets, has fallen victim to fragile market sentiment.

Investors may have to accept the reality that they can’t make easy money anymore given the policy uncertainty in mainland China and even in developed economies like the United States, Japan and Europe.

I’ve always suggested that investors should assign 20 to 30 percent of their portfolio to short- and medium-term investments when the market is volatile.

For example, they could use the market correction to collect some growth stocks like Tencent Holdings (00700.HK), Sunny Optical Technology Group (02382.HK) and Kingsoft Corp. (03888.HK). A number of healthcare and infrastructure stocks are also attractive.

I’ve also noted earlier that a number of high-dividend and utility stocks are usually dumped by fund managers when they change bets, which would create a good timing for bargain hunting for medium-term investors.

Hong Kong market is expected to remain volatile this year.

Beijing might reduce its stimulus measures since some industries have already become red hot and certain “zombie companies” even resumed production after the government introduced monetary easing and supportive measures earlier this year.

In this case, economic data for April and May might cool off a bit, and the upcoming trade and inflation figures would offer a good excuse for short-sellers.

The Bank of Japan’s inaction stunned the global market last week. It’s also been rumored that the US Federal Reserve might launch further quantitative easing move.

The market is set to experience heightened volatility in the coming months in the face of so many uncertainties.

National People’s Congress Standing Committee Chairman Zhang Dejiang will visit Hong Kong next week. That has stoked market rumors that the Shenzhen-Hong Kong Stock Connect will be announced soon.

However, Zhang is more likely to reiterate the stock link scheme will be launched within this year, since China is focusing on preventing capital outflow.

Also, the inclusion of A shares in the MSCI benchmark has more impact on market sentiment rather than any substantial boost.

It seems the Shenzhen-Hong Kong Stock Connect may be announced after the uncertainty around Brexit and Fed rate hike has been removed.

This article appeared in the Hong Kong Economic Journal on May 10.

Translation by Julie Zhu

[Chinese version 中文版]

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columnist at the Hong Kong Economic Journal

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